Budget Paper No. 1 - Budget Strategy and Outlook · 2021. 5. 11. · The stronger-than-expected economic recovery has improved the budget position. The underlying cash balance is

Budget Strategy and Outlook Budget Paper No. 1

2021–22

Circulated by

The Honourable Josh Frydenberg MP Treasurer of the Commonwealth of Australia

and

Senator the Hon Simon Birmingham Minister for Finance of the Commonwealth of Australia

For the information of honourable members on the occasion of the Budget 2021-22

11 May 2021

© Commonwealth of Australia 2021

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Page iii

Notes

(a) The following definitions are used in this Budget Paper:

– ‘real’ means adjusted for the effect of inflation;

– real growth in expenses and payments is calculated using the

Consumer Price Index (CPI) as the deflator;

– the Budget year refers to 2021-22, while the forward years refer to 2022-23,

2023-24 and 2024-25; and

– one billion is equal to one thousand million.

(b) Figures in tables and generally in the text have been rounded. Discrepancies in

tables between totals and sums of components are due to rounding:

– estimates under $100,000 are rounded to the nearest thousand;

– estimates $100,000 and over are generally rounded to the nearest tenth of a

million;

– estimates midway between rounding points are rounded up; and

– the percentage changes in statistical tables are calculated using unrounded

data.

(c) For the budget balance, a negative sign indicates a deficit while no sign indicates

a surplus.

(d) The following notations are used:

- nil

na not applicable (unless otherwise specified)

$m millions of dollars

$b billions of dollars

nfp not for publication

(e) estimates (unless otherwise specified)

(p) projections (unless otherwise specified)

NEC/nec not elsewhere classified

| Budget Paper No. 1

Page iv

(e) The Australian Capital Territory and the Northern Territory are referred to as

‘the territories’. References to the ‘states’ or ‘each state’ include the territories.

The following abbreviations are used for the names of the states, where

appropriate:

NSW New South Wales

VIC Victoria

QLD Queensland

WA Western Australia

SA South Australia

TAS Tasmania

ACT Australian Capital Territory

NT Northern Territory

(f) In this paper the term ‘Commonwealth’ refers to the Commonwealth of Australia.

The term is used when referring to the legal entity of the Commonwealth of

Australia.

The term ‘Australian Government’ is used when referring to the Government and

the decisions and activities made by the Government on behalf of the

Commonwealth of Australia.

Budget Paper No. 1, Budget Strategy and Outlook 2021-22, is one of a series of

Budget Papers that provides information to supplement the Budget Speech. A full list of

the series is printed on the inside cover of this paper.

Page v

Contents

Statement 1: Budget Overview ...................................................................... 5 Introduction ...................................................................................................................... 5 Economic Outlook ........................................................................................................... 8 Fiscal Strategy and Outlook ............................................................................................ 9 Budget Priorities ............................................................................................................ 11

Statement 2: Economic Outlook .................................................................. 33 Overview ....................................................................................................................... 33 Outlook for the international economy .......................................................................... 38 Outlook for the domestic economy ................................................................................ 44 Medium-term projections ............................................................................................... 65

Statement 3: Fiscal Strategy and Outlook .................................................. 71 Overview ....................................................................................................................... 71 Economic and Fiscal Strategy ....................................................................................... 72 Fiscal outlook — forward estimates .............................................................................. 75 The Government’s balance sheet ................................................................................. 90 Medium-term fiscal projections ..................................................................................... 94

Statement 4: The labour market through COVID-19 ................................. 107 The impact of COVID-19 ............................................................................................. 107 The policy response .................................................................................................... 110 The labour market recovery and JobKeeper transitions ............................................. 113 Supporting the recovery .............................................................................................. 119

Statement 5: Revenue ................................................................................ 129 Overview ..................................................................................................................... 129 Variations in receipts estimates .................................................................................. 137 Variations in revenue estimates .................................................................................. 149 Appendix A: Tax Benchmarks and Variations Statement ........................................... 152

Statement 6: Expenses and Net Capital Investment ................................ 159 Overview ..................................................................................................................... 159 Estimated expenses by function ................................................................................. 161 General government sector expenses ........................................................................ 165 General government net capital investment ............................................................... 194 Appendix A: Expense by Function and Sub-Function................................................. 198


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Statement 7: Debt Statement ..................................................................... 203 Overview ..................................................................................................................... 203 Australian Government Securities issuance ............................................................... 203 Estimates and projections of key debt aggregates ..................................................... 205 Estimates of AGS on issue ......................................................................................... 205 Non-resident holdings of AGS on issue ...................................................................... 213 Estimates and projections of net debt ......................................................................... 214 Interest on AGS ........................................................................................................... 216 Climate spending......................................................................................................... 219

Statement 8: Forecasting Performance and Sensitivity Analysis ........... 223 Overview ..................................................................................................................... 223 Assessing historical forecasting performance ............................................................. 224 Assessing current forecasts through confidence interval analysis ............................. 231 Assessing current forecasts through sensitivity analysis ............................................ 236

Statement 9: Statement of Risks ............................................................... 249 Risks to the Budget — Overview ................................................................................ 249 Agriculture, Water and the Environment ..................................................................... 258 Attorney-General’s ...................................................................................................... 259 Defence ....................................................................................................................... 260 Education Skills and Employment ............................................................................... 262 Finance ........................................................................................................................ 263 Foreign Affairs and Trade ........................................................................................... 267 Health ......................................................................................................................... 269 Home Affairs ................................................................................................................ 272 Industry, Science, Energy and Resources .................................................................. 274 Infrastructure, Transport, Regional Development and Communications .................... 279 Prime Minister and Cabinet ......................................................................................... 284 Treasury ...................................................................................................................... 285 Veterans’ Affairs .......................................................................................................... 291 Government loans ....................................................................................................... 292 Loan Items ................................................................................................................... 296

Statement 10: Australian Government Budget Financial Statements .................................................................................................. 309 Notes to the general government sector financial statements ...................................... 324 Appendix A: Financial reporting standards and budget concepts ............................... 339

AASB 1049 Conceptual framework............................................................................. 339 Appendix B: Assets and Liabilities .............................................................................. 347 The Australian Government’s major assets and liabilities .......................................... 347

Budget Paper No. 1 |

Page vii

Statement 11: Historical Australian Government Data ............................ 355 Data sources ............................................................................................................... 355 Comparability of data across years ............................................................................. 355 Revisions to previously published data ....................................................................... 357

Statement 1: Budget Overview | Page 1

Statement 1: Budget Overview

This Budget sets out the next stage in the Government’s economic plan to get Australia through COVID-19. It secures Australia’s recovery by creating jobs, guaranteeing the essential services and building a more secure and resilient Australia.

It builds on Australia’s successful management of the pandemic which was supported by an unprecedented $311 billion in health and economic support.

As a result the economy is recovering strongly from its first recession in almost 30 years, growing at its fastest pace on record over the latter half of last year and outperforming all major advanced economies in 2020. Labour market outcomes have surpassed even the most optimistic of expectations with employment levels having more than fully recovered the job losses seen through the pandemic to reach record highs.

The virus continues to present an ongoing threat to the global and domestic economy, therefore it is critical that fiscal support continues to be provided to secure the recovery. As emergency COVID-19 support concludes, the next stage of the Government’s plan to secure Australia’s economic recovery is focused on the transition to sustainable private sector-led growth to create jobs and drive unemployment down to pre-pandemic levels or lower. The unemployment rate is forecast to fall to 4¾ per cent by mid-2023. This would mark the first sustained period of unemployment below 5 per cent since before the Global Financial Crisis and only the second time since the early 1970s.

The stronger-than-expected economic recovery has improved the budget position. The underlying cash balance is now expected to be a deficit of $161.0 billion in 2020-21, compared with $213.7 billion at the 2020-21 Budget and $106.6 billion in 2021-22. The budget position is expected to improve over the forward estimates to an expected deficit of $57.0 billion in 2024-25. Net debt is now expected to peak as a share of GDP at 40.9 per cent, compared with the 43.8 per cent peak projected at the 2020-21 Budget.

To protect Australians from COVID-19 and facilitate the re-opening of the economy, the Government is:

• investing $1.9 billion through the COVID-19 Vaccination Strategy

• providing $1.5 billion to extend a range of COVID-19 health response measures.

Page 2 | Statement 1: Budget Overview

To secure the economic recovery, the Government is continuing to provide support to Australian households and businesses to drive the unemployment rate down. Key measures include:

• $7.8 billion to extend tax relief to around 10.2 million low- and middle-income earners

• $20.7 billion in tax relief through extending temporary full expensing and temporary loss carry-back

• $15.2 billion in new commitments to infrastructure projects across Australia.

The Government is building skills for the future and encouraging more Australians to participate in the labour market. Investments are being made to support a dynamic and flexible economy, including by laying the foundations for Australia to be a leading digital economy and introducing a patent box for medical and biotechnology innovations. Major initiatives include:

• $2.7 billion to extend the Boosting Apprenticeship Commencements wage subsidy

• $1.7 billion to support an increased Child Care Subsidy for families with second and subsequent children aged five years and under

• $1.2 billion to implement a comprehensive Digital Economy Strategy.

The Government is taking comprehensive action to guarantee the provision of high-quality and sustainable services and support our community’s most vulnerable, including:

• $17.7 billion to transform the aged care system to ensure older Australians are treated with respect, care and dignity

• $2.3 billion for mental health and suicide prevention services to deliver accessible, compassionate and coordinated care

• an additional $13.2 billion for the National Disability Insurance Scheme.

The Budget delivers programs to improve women’s safety, economic security, health and wellbeing, committing more than $3.4 billion to support women.

The Government is investing to support Australia’s economic resilience, including by shoring up Australia’s fuel security. This Budget improves Australia’s disaster resilience and provides $537.6 million to strengthen our regions and $486.3 million to protect our environment in addition to $1.6 billion to fund clean energy technology.

The Government’s plan will secure Australia’s economic recovery by prioritising economic growth and job creation, and ensure that Australian households and businesses emerge stronger on the other side of the pandemic.


Contents

Introduction .................................................................................................... 5

Economic Outlook .......................................................................................... 8

Fiscal Strategy and Outlook .......................................................................... 9

Budget Priorities .......................................................................................... 11 Getting Australians through COVID-19 ......................................................................... 13 Setting Australia up for the future .................................................................................. 15 Guaranteeing the essential services ............................................................................. 21 Building a more resilient and secure Australia .............................................................. 25


Statement 1: Budget Overview

Introduction

This Budget sets out the next stage in the Government’s plan to get Australia through

the COVID-19 pandemic, secure the economic recovery and set the nation up for the

future. It is a plan to protect the health of Australians, create more jobs and guarantee

the essential services.

The Government’s priority remains to save lives by continuing to suppress COVID-19

and rollout the vaccine to support the further re-opening of the economy. The

Government will secure the economic recovery by taking further action to support

private sector-led growth and drive down the unemployment rate. Economic support

announced as part of the emergency response in 2020 is still flowing to households and

businesses. This, together with further targeted support in this Budget and the ongoing

rollout of the vaccine, underpins a positive outlook for the Australian economy.

The Australian economy has displayed remarkable resilience in the face of the

COVID-19 pandemic. The economy is recovering strongly from its first recession in

almost 30 years, growing at its fastest pace on record over the latter half of last year and

outperforming all major advanced economies in 2020. Labour market outcomes have

surpassed even the most optimistic of expectations. With close to one million jobs added

to the economy since May 2020, employment levels have more than recovered the losses

seen through the pandemic to reach record highs. The peak in the unemployment rate

is now expected to have passed and labour force participation has increased to a record

high.

The outlook for the Australian economy has strengthened and output is now expected

to have already exceeded its pre-pandemic level in the March quarter of 2021, nine

months earlier than forecast last Budget. Ongoing momentum, the rollout of the vaccine

and continued fiscal policy support, including new initiatives announced as part of this

Budget, are expected to drive robust growth over the forecast period. The conclusion of

the JobKeeper Payment is not expected to interrupt the recovery in the labour market,

nor hinder growth in the broader economy. Continued steady growth is forecast for

employment, along with further declines in the unemployment rate, which is forecast to

fall below 5 per cent by late 2022 and to reach 4¾ per cent in the June quarter of 2023.

This would mark the first time that Australia has seen a sustained period of

unemployment below 5 per cent since the years leading up to the Global Financial Crisis

and only the second time since the early 1970’s.

Overall, the outlook remains positive, though considerable risks remain. Australia’s

success in containing the health crisis to date has underpinned the economic recovery,

but continued growth will rely on the effective containment of any COVID-19 outbreaks

in Australia, including those that may arise from any new strains of the virus.



Experiences in other countries, particularly India, demonstrate the significant

health-related risks that are ongoing.

The faster-than-expected economic recovery and improved economic outlook is driving

a large upgrade to forecast tax receipts. This has enabled the Government to make

significant investments in the next stage of its economic plan. This includes reforms to

enable individuals and businesses to better capitalise on the opportunities following the

pandemic and improve delivery of high-quality and sustainable government services.

The underlying cash balance is now expected to be a deficit of $161.0 billion in 2020-21,

a $52.7 billion improvement compared with $213.7 billion at the 2020-21 Budget,

predominantly as a result of better-than-expected tax receipts. The underlying cash

balance is expected to be a deficit of $106.6 billion in 2021-22 and continue to improve

over the forward estimates to a deficit of $57.0 billion in 2024-25, nearly one third the

deficit in 2020-21.

The broad-based economic support measures introduced by the Government were

critical during the emergency phase of the COVID-19 pandemic to limit the economic

cost and longer-term labour scarring from the crisis. As this emergency support

concludes, most notably with the end of the JobKeeper Payment, the Government is

providing support and incentives to help facilitate the transition to private sector-led

growth to create jobs and drive the unemployment rate lower.

The Government is extending tax relief to low- and middle-income earners to benefit

hard-working Australians and tax incentives to encourage businesses to invest, grow

and create more jobs. Targeted support is being provided for those sectors and regions

disproportionately affected by COVID-19’s impacts, including the aviation, tourism, arts

and international education sectors.

The Government is setting Australia up for the future and enabling individuals and

businesses to get ahead by building skills and supporting job creation to get Australians

into work and drive the unemployment rate lower. Investments are also being made to

support a dynamic and flexible economy, including by laying the foundations for

Australia to be a leading digital economy by 2030.

Comprehensive action is being taken to guarantee high-quality and sustainable services

for our community’s most vulnerable. This includes significant further investments in

response to Royal Commissions and inquiries that the Government has commissioned

in areas of great national importance, including aged care and mental health. The Budget

is also investing in the National Disability Insurance Scheme (NDIS).

In this Budget, the Government is delivering programs to improve women’s safety,

economic security, and health and wellbeing, including through more affordable



childcare for growing families and financial support for women who escape family and

domestic violence.

The Government is taking action to build Australia’s economic resilience and keep

Australian’s safe in an evolving and complex environment, including through

strengthening Australia’s national security, defence and law enforcement capabilities.

The Government remains committed to building Defence capability and supporting

Australia’s sovereign defence industry.

This Budget improves Australia’s disaster resilience by strengthening the nation’s

ability to prepare, respond and recover from natural disasters, and invests in regional

Australia so it can grow, prosper and be more resilient to future shocks. Further

investments are being made to care for the environment, including through a

technology-focused approach to reducing emissions, while supporting jobs and

strengthening our economy.

Consistent with the first phase of the Economic and Fiscal Strategy, the Government

remains focused on driving the unemployment rate down to pre-pandemic levels or

lower by supporting private sector-led growth. This recognises that economic growth is

essential to maintaining a strong and sustainable fiscal position.

Although remarkable progress has been made in the domestic economic recovery, the

virus still presents an ongoing threat to the economic and fiscal outlook. For this reason,

the Government will continue to provide significant fiscal support until the economic

recovery is secured.

Table 1.1: Budget aggregates Actual Estimates

2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 Total(a)

Underlying cash balance ($b)(b) -85.3 -161.0 -106.6 -99.3 -79.5 -57.0 -342.4

Per cent of GDP -4.3 -7.8 -5.0 -4.6 -3.5 -2.4

Net operating balance ($b) -92.3 -154.5 -92.7 -90.2 -70.2 -55.7 -308.9

Per cent of GDP -4.7 -7.5 -4.3 -4.1 -3.1 -2.3

(a) Total is equal to the sum of amounts from 2021-22 to 2024-25. (b) Excludes net Future Fund earnings before 2020-21.



Economic Outlook

The recovery in the Australian economy from the COVID-19 recession has continued to

surpass expectations, having outperformed every major advanced economy in 2020.

Real GDP grew strongly over the latter half of 2020, marking the first time on record

when Australia has experienced two consecutive quarters of economic growth above

3 per cent.

Together with the success in managing the spread of the COVID-19 virus, the

Government’s significant fiscal policy response has been central to Australia’s economic

performance throughout the pandemic. As emergency support concludes, additional

assistance focused on supporting private sector activity remains in place to secure the

recovery.

The outlook for the Australian economy has strengthened and output is expected to

have exceeded its pre-pandemic level in the March quarter of 2021. Following the strong

rebound in economic activity, recent record rates of growth are expected to moderate as

the economy transitions from the initial reopening phase of the recovery. Nevertheless,

ongoing momentum, the rollout of the vaccine and continued fiscal policy support,

including new initiatives announced as part of this Budget, are expected to drive strong

growth over the forecast period. Real GDP is forecast to grow by 1¼ per cent in 2020-21,

by 4¼ per cent in 2021-22 and 2½ per cent in 2022-23. After falling by 2.5 per cent in 2020,

real GDP is expected to grow by 5¼ per cent in 2021, and by 2¾ per cent in 2022.

Robust growth over the forecast period is expected to drive continued steady growth in

employment and further declines in the unemployment rate, which is forecast to fall

below 5 per cent by late 2022, to reach 4¾ per cent in the June quarter of 2023. This would

mark the first time that Australia has seen a sustained period of unemployment below

5 per cent since the years leading up to the Global Financial Crisis, and only the second

time since the early 1970’s.

The recent strength in key commodity prices, particularly iron ore, has seen a significant

resurgence in Australia’s terms of trade and has supported profitability in the mining

sector, the benefits of which will flow through to the broader economy. As a result,

nominal GDP is expected to grow by 3¾ per cent in 2020-21, by a further 3½ per cent in

2021-22 and by 2 per cent in 2022-23. The global economic recovery is also gathering

pace, with stronger-than-expected activity in the December quarter of 2020 for most

major trading partners. Further progress on vaccine rollouts in advanced economies,

major fiscal policy support and accumulated household savings have all contributed to

increased confidence in the global economic outlook. However, the pace of recovery is

uneven and significant risks to the global outlook remain, heightened by ongoing

outbreaks of COVID-19 in major economies, most notably in India.



While the outlook is positive, considerable risks remain. The continued economic

recovery will rely on the effective containment of COVID-19 outbreaks both here and

abroad and will be a key factor in the timing of the reopening of international borders,

which could weigh on the outlook for the tourism and education sectors. Internationally,

ongoing global trade tensions and the potential for further trade actions continue to pose

risks to the outlook for Australian exports. More broadly, downside risks to the outlook

for the global economy from ongoing outbreaks of the virus in major economies,

including India, could have implications for Australia’s domestic economy.

Table 1.2: Major economic parameters(a)

Outcome Forecasts

2019-20 2020-21 2021-22 2022-23 2023-24 2024-25

Real GDP -0.2 1 1/4 4 1/4 2 1/2 2 1/4 2 1/2

Employment -4.2 6 1/2 1 1 1 1/4 1 1/4

Unemployment rate 6.9 5 1/2 5 4 3/4 4 1/2 4 1/2

Consumer price index -0.3 3 1/2 1 3/4 2 1/4 2 1/2 2 1/2

Wage price index 1.8 1 1/4 1 1/2 2 1/4 2 1/2 2 3/4

Nominal GDP 1.7 3 3/4 3 1/2 2 4 3/4 5

(a) Real GDP and Nominal GDP are percentage change on preceding year. The consumer price index, employment, and the wage price index are through-the-year growth to the June quarter. The unemployment rate is the rate for the June quarter.

Source: ABS Australian National Accounts: National Income, Expenditure and Product; Labour Force, Australia; Wage Price Index, Australia; Consumer Price Index, Australia and Treasury.

Fiscal Strategy and Outlook

Australia entered the COVID-19 pandemic from a position of economic and fiscal

strength made possible by years of responsible budget management. This enabled the

Government to act decisively and provide an unprecedented level of economic support,

which protected vulnerable households and businesses, kept as many Australians as

possible in work, and avoided labour market scarring.

The economic support and public health response were critical to successfully

mitigating the effects of the pandemic and laying the foundations for economic recovery.

The stronger-than-expected economic recovery has improved the fiscal position. The

strength in the domestic economic recovery is reflected in higher tax receipts. Across the

four years to 2023-24, taxation receipts are expected to have improved by $84.5 billion

since the 2020-21 Budget.

The stronger fiscal position has enabled the Government to continue to invest in the next

stage of its economic plan.

The underlying cash balance is now expected to be a deficit of $106.6 billion in 2021-22,

compared with a deficit of $112.0 billion at the 2020-21 Budget. The budget position is

expected to improve over the forward estimates to an expected deficit of $57.0 billion



in 2024-25. Over the medium term, the underlying cash balance is projected to improve

to a deficit of 1.3 per cent of GDP by 2031-32.

Net debt is expected to be 34.2 per cent of GDP at 30 June 2022 and peak at 40.9 per cent

of GDP in 2024-25, below the 43.8 per cent peak projected at the 2020-21 Budget.

Net debt is then projected to fall over the medium term to 37.0 per cent of GDP at 30 June

2032. Gross debt is expected to be 45.1 per cent of GDP at 30 June 2022, 5.4 per cent lower

compared with the 2020-21 Budget, before increasing to 50.0 per cent of GDP at

30 June 2025. Gross debt is projected to stabilise over the medium term at around

51 per cent of GDP.

Australia continues to have a low debt-to-GDP ratio compared to most other advanced

economies and our level of debt remains fiscally sustainable. While gross debt has

increased significantly since the onset of the pandemic, the cost of servicing that debt is

lower in 2021-22 than it was in 2018-19, as a result of historically low interest rates. The

Government’s extension and maintenance of the Australian Government Securities

yield curve to 30 years has reduced the refinancing risk on the debt portfolio making

debt repayments less sensitive to short term movements in yields. Low yields, together

with strong economic growth, means the Government can reduce the debt-to-GDP ratio

without running a surplus.

The Government remains committed to maintaining momentum in the economic

recovery, consistent with its Economic and Fiscal Strategy. Once the economic recovery

is secured and the unemployment rate is at pre-pandemic levels or lower, the

Government will steadily transition to the medium-term strategy. The medium-term

strategy is to grow the economy in order to stabilise and then reduce debt as a share of

GDP.



Budget Priorities

In this Budget, the Government is delivering on its key priorities of:

• Getting Australians through COVID-19 by:

– protecting Australians from COVID-19, including through the COVID-19

Vaccination Strategy

– extending tax relief to low- and middle-income earners to support hard-working

Australians

– extending tax incentives to encourage businesses to invest and create more jobs

– providing targeted support for those sectors and regions continuing to be affected

by COVID-19.

• Setting Australia up for the future by:

– supporting employment growth and helping Australians secure more and better

paying jobs, including through investing in infrastructure, skills and promoting

women’s economic security

– implementing reforms to achieve a more dynamic, productive and flexible

economy, including through a comprehensive Digital Economy Strategy,

introducing a patent box for medical and biotechnology innovations and policies

to support global business and talent attraction.

• Guaranteeing high-quality and sustainable services for Australians, including

through major investments in fundamental aged care reform, mental health and the

NDIS, strengthening the social safety net, and improving women’s safety.

• Building Australia’s resilience, security and defence capability, including through

investing in Australia’s regions to grow, prosper and build resilience to drought and

disasters, reducing Australia’s emissions while supporting jobs, and supporting

Australia’s sovereign defence industry.



Box 1.1 Women’s Safety, Economic Security, and Health and Wellbeing

The Government is committed to ensuring that Australia is a place where women are able and encouraged to make the choices that are right for them. This means an Australia that does not tolerate violence against women and their children, promotes women’s economic security, and supports women’s health and wellbeing.

The Government has established a new Cabinet Taskforce to lead the work to address these critical issues. The Taskforce is co-chaired by the Prime Minister and the Minister for Women, and supported by the Minister for Women’s Safety, Minister for Women’s Economic Security and Assistant Minister for Women. In this Budget, a Women’s Budget Statement reflects the priority focus on these important issues.

In the 2021-22 Budget, the Government is committing $3.4 billion to improve women’s safety, economic security, and health and wellbeing. Key measures include:

• $1.7 billion for more affordable childcare for growing families

• $164.8 million in financial support for women who escape family and domestic violence

• $129.0 million for increased legal assistance funding enabling women to access justice

• $31.5 million to expand the superannuation guarantee to include employees earning less than $450 per month, particularly benefitting women

• $25.7 million to boost the next generation of women in STEM

• $21.6 million to provide improved maternal, sexual and reproductive health outcomes, including for endometriosis, for women and girls in Australia.

These commitments build on the:

• Government’s response to the Sex Discrimination Commissioner’s Respect@Work Report

• National Plan to Reduce Violence against Women and their Children 2010-2022

• 2018 and 2020 Women’s Economic Security Statements.



Getting Australians through COVID-19

Since the start of the pandemic, the Government has committed $311 billion in health

and direct economic support. This decisive action from the onset of the pandemic has

been central to Australia’s world leading health and economic outcomes.

This Budget builds on the significant economic support already flowing through to

households and businesses. The Government is extending tax relief to low- and

middle-income earners along with tax incentives to encourage businesses to further

invest and create more jobs, while providing targeted support for sectors that continue

to be affected by the international border closures.

Protecting Australians’ health

The Government is committed to protecting Australians from COVID-19 and facilitating

the re-opening of the Australian economy, investing a further $1.9 billion in Australia’s

COVID-19 Vaccination Strategy.

There has been extensive investment in a diverse portfolio of COVID-19 vaccines, with

the Government committing to access around 170 million doses. The Government

continues to work with states and territories to support the delivery of vaccines to all

Australians who wish to be vaccinated.

Alongside the roll-out of COVID-19 vaccines, $1.5 billion is being provided in this

Budget to extend a range of COVID-19 health response measures. These include

COVID-19 testing, expanding general practitioner respiratory clinics and continuing

funding for hospital activity under the National Partnership on the COVID-19 Response.

Securing Australia’s economic recovery

Tax relief for low- and middle-income Australians

To increase household disposable income and support the economic recovery, the

Government will retain the low and middle income tax offset (LMITO) in 2021-22 to

provide $7.8 billion in targeted support to around 10.2 million low- and middle-income

earners. The LMITO provides a further tax cut of up to $1,080 for individuals or $2,160

for dual income couples, with the maximum benefit going to individuals with taxable

incomes between $48,000 and $90,000. Treasury estimates that extending the LMITO will

boost GDP by around $4.5 billion in 2022-23 and will create an additional 20,000 jobs by

the end of 2022-23.

The retention of the LMITO is on top of the $25.1 billion in tax cuts flowing to households

in 2021-22 that have been announced in previous budgets. The Government’s legislated

Personal Income Tax Plan will continue to create a more competitive and efficient tax

system. Stage 3 — the final stage of the plan — will abolish the 37 per cent marginal tax

rate and reduce the 32.5 per cent marginal tax rate to 30 per cent. In 2024-25, around

95 per cent of taxpayers will face a marginal tax rate of no more than 30 per cent.



Extending temporary full expensing and temporary loss carry-back

In the 2020-21 Budget, the Government introduced temporary full expensing of

depreciable assets for businesses with turnover or statutory and ordinary income below

$5 billion.

In this Budget, temporary full expensing will be extended for 12 months until

30 June 2023 to encourage additional investment by allowing projects with longer lead

times or that are experiencing COVID-19 related supply chain disruptions to be eligible

for full expensing. Eligible businesses will be able to deduct the full cost of eligible assets,

including the cost of improvements to existing assets, incurred between 7:30pm (AEDT)

on 6 October 2020 and 30 June 2023.

The Government is also extending temporary loss carry-back to the 2022-23 income year.

This will allow companies with turnover below $5 billion to recoup tax previously paid

on prior year profits, as far back as the 2018-19 income year, using 2022-23 tax losses.

This will provide further cash flow support to businesses and encourage investment

utilising the extended temporary full expensing measure while it is available.

These measures are estimated to deliver a further $20.7 billion in tax relief to businesses

over the forward estimates period. The cost over the medium term is only $5.3 billion,

given these measures work by bringing forward tax deductions or the utilisation of

losses from future years.

Full expensing and loss carry-back, including the extension, is estimated to boost GDP

by around $2.5 billion in 2020-21, $7.5 billion in 2021-22, and $8 billion in 2022-23, and

create around 60,000 jobs by the end of 2022-23.

Supporting our worst hit sectors and regions

While Australia’s economic recovery is well underway, COVID-19 continues to have a

significant effect on a number of sectors and regions across the country. The

Government is committed to supporting workers and industries that continue to need

support, including in the aviation, tourism, arts and international education sectors, to

ensure these sectors get to the other side of the COVID-19 pandemic. Consistent with

the principles that have guided the Government’s response to the pandemic, economic

support will be temporary, targeted, proportionate and have a clear exit strategy.

Key initiatives include:

• an additional $1.2 billion targeted support package to the aviation and tourism

sectors to maintain essential air services, boost domestic tourism in our regions and

protect tourism and aviation jobs. This builds on over $2.7 billion in direct aviation

support provided throughout the COVID-19 pandemic



• the Small and Medium Enterprise (SME) Recovery Loan Scheme, which builds on

the SME Guarantee scheme, to support SMEs with a turnover of up to $250 million

that were recipients of JobKeeper Payments in the March quarter of 2021, or were

affected by the floods in March 2021 and were located or operating in eligible Local

Government Areas. By increasing lenders’ ability to provide cheaper credit, the new

Scheme allows many otherwise-viable SMEs to access additional funding, thereby

helping businesses manage their cash flows and invest for the future

• almost $300 million to support the successful re-opening of Australia’s creative and

cultural sector, building on almost $800 million in targeted support provided in

response to the COVID-19 pandemic

• $53.6 million to support Australian education providers most reliant on international

students. Grants of up to $150,000 will be available for eligible private higher

education and English Language Intensive Course for Overseas Students (ELICOS)

providers to invest in staff expertise and new teaching solutions. Courses available

for domestic students will also be expanded, with the Government supporting an

additional 5,000 Commonwealth supported short course places at non-university

higher education providers (NUHEPS) in 2021 and extending regulatory fee relief for

all international education providers until 31 December 2021.

Setting Australia up for the future

The 2021-22 Budget introduces further measures to build skills for the future, assist

vulnerable unemployed Australians to get back into jobs and boost labour market

participation.

Building skills for the future

The Government is investing to build the skills that Australia’s economy needs to thrive

in a post-COVID-19 world. These measures build on the Government’s successive

reforms and investments in the skills sector since 2013-14, which includes $6.4 billion

that the Government will invest into the sector in 2021-22. These initiatives will assist

those areas and industries that are facing challenges in getting the workers they need.

The Government is investing an additional $500 million to expand the JobTrainer Fund,

subject to matched funding by state and territory governments. Extending JobTrainer

until 31 December 2022 will deliver a further 163,000 places. It will support 10,000 digital

skills training places and 33,800 places for existing and new aged care workers to upskill.

The extended JobTrainer Fund will continue to support job seekers, school leavers and

young people in areas of genuine need to reskill and upskill.

The Government is investing an additional $2.7 billion to extend and expand the

Boosting Apprenticeship Commencements (BAC) wage subsidy. In March 2021, the

Government uncapped the BAC and extended the wage subsidy to 12 months. This is

expected to benefit an additional 70,000 apprentices and trainees above the original



100,000 when the measure was announced in last year’s Budget. In this Budget, the

Government is extending the BAC to apprentices and trainees who sign up by

31 March 2022. This will support a further 100,000 apprentices and trainees and build a

pipeline of skilled workers for Australia’s economic recovery. The funding in this

Budget includes 5,000 additional gateway services to women and in-training support

services for women commencing in a non-traditional trade occupation.

The Government is introducing a care workforce package, which will reduce red tape

for providers and workers while increasing worker mobility and improve quality of care

across the aged, disability and veterans care sectors. As part of the package, the

Government is providing $12.3 million to improve the alignment of regulation across

the sectors, and $105.6 million to align worker screening processes. The package also

includes the development of a care sector code of conduct and improvements to the

Boosting the Local Care Workforce Program.

Getting Australians into work

The 2021-22 Budget is focused on creating jobs and supporting the unemployed to

develop clear pathways into work. The Government is investing in employment

programs and training places, with a focus on young people, women returning to work

and Indigenous Australians.

Wage subsidies available through jobactive, Transition to Work and ParentsNext will be

increased to $10,000 and the Local Jobs Program will be expanded and extended to

51 employment regions. This will bring together employment service providers, local

employers and training organisations to meet local labour market needs and provide

targeted training.

To support foundational skills, the Government is providing $23.6 million over the

forward estimates for the expansion of the Skills for Employment and Education (SEE)

program, including uncapping the number of places and removing the requirement that

job seekers are receiving income support. The funding will accelerate the introduction

of digital skills training and ensure that all job seekers with low levels of language,

literacy, numeracy and digital literacy have access to relevant foundational skills

training to boost their employment prospects.

The Budget also includes further measures that focus on disadvantaged job seekers and

those most impacted by the pandemic. The Government will introduce a new

employment services program to replace jobactive from 1 July 2022. The new program

will enable job-ready job seekers to self-manage their job search on a digital platform

and redirect resources to intensive face-to-face services for the most disadvantaged job

seekers. Job seekers in Disability Employment Services will also be able to participate in

digital services to find employment from 1 January 2022.



The Government’s youth specialist employment service, Transition to Work, will receive

an additional $481.2 million over the forward estimates while the National Careers

Institute (NCI) will receive an additional $19.8 million to expand services to help young

people and women make informed decisions about their education and career

pathways. The Government is expanding the Career Revive program to 60 additional

businesses to attract and retain women returning to work after a career break.

Investing in women’s economic security

The Government is investing in women’s economic outcomes with a $1.9 billion

Women’s Economic Security Package. This package includes $1.7 billion over five years

for an increased Child Care Subsidy for families with second and subsequent children

aged five years and under. Investments for women’s employment and professional

development is being provided with a commitment of $42.4 million over seven years to

boost the next generation of women in STEM and $38.3 million over five years to expand

the Women’s Leadership and Development Program.

The coverage of the superannuation system is being improved by removing the current

$450 per month income threshold from 1 July 2022, under which employees do not have

to be paid the superannuation guarantee by their employer. This will benefit lower

income workers, particularly women.

Increasing participation through lifting incentives to work

Creating the right incentives to work and seek employment will lift workforce

participation and help those Australians who are unemployed return to work.

The Government has provided $9.5 billion to enhance the social security safety net by

increasing support for unemployed Australians while strengthening their obligations to

search for work. From 1 April 2021, the rate of working age payments increased by $50 a

fortnight, benefitting 1.9 million Australians. The Government has also increased the

income free area to $150 per fortnight for JobSeeker Payment and Youth Allowance

(other), allowing recipients of these payments to earn more income before their payment

begins to taper.

Alongside the changes to income support payments, the Government is strengthening

mutual obligations to provide better support for job seekers in their search for work. As

a complementary measure, the Earn and/or Learn initiative will be extended until

30 June 2022, providing job seekers additional flexibility in how they meet their mutual

obligations and better equipping them for employment.

Boosting job creation

The Government is building on the substantial packages of support already provided to

boost job creation, through major new investments in infrastructure, housing and the

engineering construction sector.



Infrastructure investment

As part of the Government’s record $110 billion 10-year infrastructure pipeline, an

additional $15.2 billion over ten years is being committed to road, rail and community

infrastructure projects across Australia. These new commitments will support over

30,000 direct and indirect jobs across the lives of the projects.

As part of this package, the Government is committing $2.0 billion to support delivery

of the Melbourne Intermodal Terminal. This project will boost productivity by

increasing the efficiency and capacity of the national rail freight network and take

thousands of trucks off the road.

Additional road and rail commitments across Australia include:

• $2.6 billion for the North-South Corridor — Darlington to Anzac Highway in

South Australia

• $2.0 billion for the Great Western Highway Upgrade — Katoomba to Lithgow in New

South Wales

• $400.0 million in additional funding for the Bruce Highway in Queensland

• $380.0 million for the Pakenham Roads Upgrade in Victoria

• $237.5 million for the METRONET to support grade separations and the elevation of

stations in Western Australia

• $150.0 million for the Northern Territory National Highway Network

• $132.5 million for the Canberra Light Rail — Stage 2A in the Australian Capital

Territory

• $113.4 million for the Midland Highway Upgrades in Tasmania.

This package also includes an additional $1 billion to extend the Local Roads and

Community Infrastructure Program, further supporting councils in maintaining and

upgrading community assets and local roads. The Road Safety Program is also being

extended to 2022-23, with additional funding of $1 billion for projects that will improve

roads and save lives. This brings the total investment by the Government in these two

stimulus programs to $5.5 billion since the start of the COVID-19 pandemic. Funding for

projects under these programs is being provided on a ‘use it or lose it’ basis to ensure

the projects are delivered efficiently.



Supporting home ownership

The Government understands the importance of owning your own home and the

significant economic and social benefits home ownership provides.

That is why the Government is providing more pathways to home ownership by

establishing the Family Home Guarantee to support single parents with dependants

(predominantly women) to enter or re-enter the housing market sooner, with a deposit

of as little as 2 per cent. In addition, the First Home Loan Deposit Scheme will be

temporarily extended by releasing a further 10,000 places under the New Home

Guarantee to support first home buyers to build a new dwelling or to purchase a newly

constructed dwelling with a deposit of as little as 5 per cent.

To support first home buyers to raise a deposit more quickly, the Government is also

amending the First Home Super Saver Scheme to increase the maximum amount of

voluntary contributions eligible to be released under the scheme to $50,000 from $30,000.

Finally, the HomeBuilder six-month construction commencement period has been

extended to 18 months for all applications. This will smooth out the HomeBuilder

construction pipeline and support jobs in the construction sector in 2021 and into 2022.

A flexible and dynamic economy

The Government is ensuring the Australian economy remains flexible, dynamic and

competitive, and workers and businesses can capitalise on the opportunities of

the future.

By delivering a comprehensive Digital Economy Strategy and investing $1.2 billion in

Australia’s digital future, the Government is laying the foundations for Australia to be

a leading digital economy and society by 2030. This package takes advantage of the

acceleration of digital transformation that has resulted from COVID-19 and builds on

previous commitments to support digitalisation through the Digital Business Plan in

2020-21, the Cyber Security Strategy, the NBN upgrade plan and the JobTrainer Fund.

In this Budget, the Government is continuing to implement the Consumer Data Right

(CDR) in the banking sector, and accelerating its rollout across the economy, including

in the energy and telecommunications sectors. Expansion of the CDR will underpin a

data-driven economy, promote innovation and empower consumers to make more

informed choices about their services, reducing costs for Australian households and

small businesses.

$124.1 million is being provided to further develop Australia’s AI capabilities, including

by helping small and medium sized businesses with medium-high digital capability

adopt AI. The Government will enhance service delivery by developing and

transitioning government services to a new myGov platform, while changes to

My Health Record will help support Australia’s world-class healthcare system.



Unlocking the digital economy means investing in emerging industries that will support

highly-skilled job opportunities for a digital workforce. The Government will invest

$18.8 million over the forward estimates in the digital games development industry to

attract international investment and encourage creative businesses to grow. From

1 July 2022, eligible entities will receive a 30 per cent refundable tax offset, capped at

$20 million per year, for qualifying Australian games expenditure.

In addition, the Government is taking action to enhance the competitiveness of

Australian businesses and put Australia at the cutting edge of science and innovation

through:

• Introducing a patent box to encourage companies to develop and apply their medical

and biotechnology innovations in Australia. This incentive will tax corporate profits

from Australian developed and patented medical and biotechnology innovations at

a concessional 17 per cent effective corporate tax rate. An internationally competitive

tax regime for patents will help encourage firms to develop their research and

development innovations into profitable businesses in Australia.

• $387.2 million to build one of the world’s largest radio telescopes in

Western Australia as part of the Square Kilometre Array (SKA) project, enabling

scientific discoveries in astronomy and generating spin-off technologies that can be

applied in other fields, such as advanced manufacturing.

In this Budget, the Government is supporting global business and talent attraction. By

bringing additional businesses, new technologies and highly skilled professionals to

Australia, the Government is ensuring Australia can capitalise on our strong economic

position coming out of the COVID-19 pandemic and remain globally competitive.

The Government will make it easier for businesses to offer employee share schemes, to

enable more Australians to share in the economic value they create through their hard

work and attract the best and brightest from around the world. To encourage global

businesses to invest in, and relocate to Australia, the Government will establish a fast

track process to provide investors with certainty around the tax implications of large

investments, finalise the implementation of the Corporate Collective Investment Vehicle

regime, and establish a more efficient licensing regime for foreign financial service

providers. Measures will also be implemented to modernise the individual tax residency

rules to provide greater certainty and reduce compliance costs for globally mobile

individuals and their employers.

The Budget furthers the Government’s Deregulation Agenda with an investment of an

additional $134.6 million. The measures in the deregulation package reduce the

regulatory burden for businesses interacting with government, make it easier for

businesses to get people into jobs, and lay the foundation for future reforms to improve

the business environment. They are estimated to generate benefits averaging



$430 million annually in reduced compliance costs to businesses, individuals and

not-for-profits. The Government will improve mutual recognition of occupational

licenses, making it easier for around 124,000 Australians to work in multiple states and

territories. This has the potential to generate more than $2.4 billion in additional

economic activity over the next ten years.

Guaranteeing the essential services

The Government is implementing reforms to guarantee high-quality and sustainable

essential services for Australians and support our community’s most vulnerable. These

reforms include taking comprehensive action to respond to the Royal Commission into

Aged Care Quality and Safety and reports into mental health by the Productivity

Commission and the National Suicide Prevention Adviser.

Ensuring high-quality and sustainable aged care services

In response to the Final Report of the Royal Commission into Aged Care Quality and

Safety, the Government has committed to record funding with an additional

$17.7 billion over five years to transform the aged care system to ensure it delivers

high-quality services for older Australians and their families, now and into the future.

This will deliver a generational change to aged care.

To enable older Australians to remain at home for longer, this Budget invests $6.5 billion

for the release of 80,000 additional Home Care Packages over the next two years. The

Aged Care Quality and Safety Commission will receive additional resources to manage

compliance and ensure quality care services, and the introduction of new star ratings.

Funding of $798.3 million will also support informal carers of older Australians,

including through increased access to respite services, and more targeted assistance for

carers of people with dementia.

To improve the quality, sustainability and safety of residential aged care, from 2020-21

the Government is investing $7.8 billion to implement a new funding model and

increase the Government’s Basic Daily Fee supplement by $10 per resident per day. In

introducing the new model, the Government is supporting provider transition and

encouraging better care by increasing funding to support an average of 200 minutes of

care time per resident per day. From 1 July 2022, residential care providers will be

required to report and publish care staffing minutes on the MyAgedCare website.

The Government is providing $630.2 million to improve access to high-quality aged care

services for those in regional, rural and remote areas, Aboriginal and

Torres Strait Islander people, and special needs groups.

The reforms announced in the Budget include $942.0 million to support older

Australians to access safe and quality care, and $652.1 million to skill the aged care

workforce for the future. An additional 33,800 training places through JobTrainer will

enable existing and new care workers to improve their qualifications.



Our reforms to aged care will be supported by new governance structures, including a

new Aged Care Act that focuses on the needs of older Australians and places

high-quality, safe and compassionate care at the centre of the system.

Delivering comprehensive mental health and suicide prevention services

The mental health of Australians is a national priority. The Government is committed to

undertaking significant structural reform of the mental health and suicide prevention

system to improve the wellbeing of Australians living with mental illness and prevent

suicide. The $2.3 billion package in this Budget is a first step to responding to

recommendations from the Productivity Commission and the National Suicide

Prevention Adviser. With this commitment to Australians’ mental health, the

Government is laying the foundations for systemic, whole-of-government reform to

deliver preventative, compassionate and effective care.

The Government will invest to improve access to in-person community based,

multidisciplinary adult mental health services. This includes $487.2 million to fund a

network of specialist Head to Health Adult Mental Health Centres and to establish a

central intake and assessment phone service. Additional centres will be opened in

partnership with states and territories. For young Australians aged 12 to 25,

$278.6 million is being made available to enhance and expand headspace centres across

the country. And for children under 12 years the Government will invest $100.8 million

to support parents and early intervention, and establish child mental health and

wellbeing hubs with the states and territories.

We are also strengthening the broader primary health care system by supporting our

general practitioners in their role as a key entry point into the mental health system by

expanding and implementing the Initial Assessment and Referral (IAR) tool and

providing additional mental health development opportunities and guidance. A further

$111.4 million is being provided for Medicare subsidised psychological therapy sessions

for patients’ family members and carers, and additional provisions for group therapy

sessions under the Better Access Initiative. To ensure more Australians can quickly

access appropriate care, $111.2 million is being provided to expand and improve

high-quality, low-cost digital mental health services.

To achieve its commitment of working towards zero suicides, the Government is

expanding the services available to Australians experiencing suicidal distress and their

loved ones. Through a National Agreement with states and territories, the Government

will provide $156.8 million to ensure that every Australian discharged from hospital

following a suicide attempt is offered at least three months of follow up care.

$22.0 million will be provided for postvention support for the family and friends of

people who die by suicide. A National Suicide Prevention Office will also be established

as a central point of coordination for a national approach.



These significant reforms will deliver a system that is evidence-based, person-centred,

informed by lived experience, acts early to help people before mental health conditions

and suicidal distress worsen, and provides the effective, compassionate care Australians

deserve.

Supporting people with disability through the NDIS

In the 2021-22 Budget, the Government will provide an additional $13.2 billion over

four years, as more people with disability benefit from the scheme. The NDIS currently

provides support to around 450,000 Australians with permanent and significant

disability and their families and carers, with over 50 per cent of participants receiving

services for the first time. The Government is committed to ensuring people with

significant and permanent disability receive the funding they need to enable them to

participate in the community.

Delivering a strong health care system

Guaranteeing Medicare remains a key pillar of the Government’s Long Term National

Health Plan. In 2021-22 the Government will invest $98.3 billion in health spending as

part of our ongoing commitment to guaranteeing Medicare for all Australians. The

Government is investing a further $3.4 billion to extend important COVID-19 measures

to continue our strong response to the pandemic, including $510.8 million to partner

with states and territories to support the rollout of the vaccine, $773.2 million for

telehealth, pathology testing and access to home medicines.

To modernise the way Medicare supports quality health care, an additional $50.7 million

is being invested to progress work on introducing MyGP, one of the first steps in the

Government’s 10 Year Primary Health Care Plan, to strengthen the relationship between

Australians and their regular GP and facilitating higher quality health care. As part of

its commitment to primary health care, the Government is also contributing

$80.9 million to provide incentives and opportunities to work and train in rural and

regional Australia, support for public dental services, $421.6 million for the Australian

Digital Health Agency’s work on My Health Record and $71.9 million for access to

after-hours health care.

This Budget provides greater access to diagnostic imaging by creating an $20.7 million

funding pool for the purchase of modern diagnostic imaging machines in rural and

remote areas.

The Government continues to guarantee affordable access to essential medicines on the

Pharmaceutical Benefits Scheme (PBS), investing $878.7 million over five years to reduce

out-of-pocket costs for new and amended listings on the PBS, including for Australians

living with chronic migraines, eczema and breast cancer.



Funding for the National Women’s Health Strategy 2020-2030 and the National Action

Plan for Endometriosis is continuing through $21.6 million to target improved maternal,

sexual and reproductive health outcomes for women.

Enhancing women’s safety

The 2021-22 Budget commits $1.1 billion for improving women’s safety.

The Government is committed to ending all forms of violence against women and their

children. It is delivering a new long-term, intergenerational National Plan to Reduce

Violence against Women and their Children.

As part of the Women’s Safety package, the Government is providing $164.8 million

over three years for financial support to help women who escape family and domestic

violence. The Government is further contributing $261.4 million to establish a new

agreement with the states and territories for frontline family, domestic and sexual

violence supports and $129.0 million for increased legal assistance to help women access

justice.

The Government is also investing $20.5 million to prevent and address sexual

harassment with its response to the Respect@Work Report.

Investing in education

The Government is committing $2.0 billion in ongoing funding for preschools through

a four-year Strategic Reform Agreement. This funding will provide certainty for early

childhood education providers and support access for all children to at least 15 hours a

week of learning in the year before school. The funding as part of this agreement is

contingent on the states and territories agreeing to key reforms on participation and

school readiness. This new agreement will improve outcomes for vulnerable and

disadvantaged cohorts and ensure that all children, regardless of their economic

circumstances, are supported to access high-quality early childhood education.

The Government is also continuing to invest record funding in Australian schools as

part of its ongoing commitment to education. Recurrent annual funding provided by

the Government for schools has increased from $13.8 billion in 2014 to $23.4 billion in

2021. Over the next ten years, the Government has committed $289 billion in total

recurrent funding for schools.

To continue to raise the quality of education, the Government will invest $4.0 million to

expand the Literacy and Numeracy Test for Initial Teacher Education Students.

Improved data is also a vital element of improving educational outcomes. The

Government is investing an additional $5.8 million to continue the Australian Teacher

Workforce Data collection and $20.0 million to continue and improve the Nationally

Consistent Collection of Data on school students with disability.



Supporting our community

The Government is investing in outcomes for Indigenous Australians through health,

aged care, education, infrastructure and women’s safety programs. The Government is

setting the foundation for achieving Closing the Gap targets and Priority Reforms, with

further targeted measures to be included in the Commonwealth’s Implementation Plan,

which will be released mid-year. To support Aboriginal and Torres Strait Islanders’

economic participation, over $227.7 million will be invested to strengthen remote service

delivery and develop a targeted employment and skills program.

The Government is making improvements to the veterans’ support system to deliver a

simpler, faster and better experience for veterans and their families and to ensure

veterans’ health and wellbeing over the long term. The 2021-22 Budget will provide

$460.4 million to ensure the Department of Veterans’ Affairs has adequate capacity to

meet veteran support needs and enhance its capacity to address veteran suicide,

including through faster processing of compensation claims.

The Government will provide $32.1 million to enable the continued delivery of annual

international Anzac Day commemorations and domestic commemorative activities to

mark important occasions in Australia’s military history, and better care for official

war graves.

Enhancing the flexibility of the superannuation system

The Government is giving older Australians more choices to contribute to their

retirement savings and cutting red tape to improve the efficiency of the system. The

Government will repeal the work test for voluntary non-concessional and salary

sacrificed contributions to superannuation and reduce the eligibility age for downsizer

contributions to 60 years. A two-year amnesty is also being introduced to enable holders

of certain legacy retirement income products to convert to newer, more flexible

products.

The flexibility of the Pension Loans Scheme is being improved by providing access to

advance payments through allowing participants to access up to 26 fortnights’ worth of

top-up payments as a lump sum and introducing a No Negative Equity Guarantee.

Building a more resilient and secure Australia

The Government is making significant investments to support Australia’s economic

resilience and to keep Australians safe in an evolving and complex environment. This

Budget improves Australia’s disaster resilience by strengthening the nation’s ability to

prepare, respond and recover from natural disasters, and invests in regional Australia

so it can grow and prosper and build resilience to future economic shocks. Investments

are also being made to care for the environment, including to reduce emissions while

supporting jobs and strengthening the economy.



Bolstering our economic resilience

Building on our previous actions that have helped reduce electricity prices by

11.2 per cent in the last year, the Government is continuing to take necessary steps to

secure affordable and reliable energy. To help maintain reliable and secure electricity as

we transition to a lower emissions future, the Government is providing $49.3 million for

battery and microgrid projects and $24.9 million to assist new gas generators become

hydrogen ready. In addition, the Government is providing $30 million for early works

on Australian Industrial Power’s Port Kembla gas generator project.

To deliver the next steps of the gas-fired recovery and continue unlocking Australia’s

gas reserves, the Government is providing a further $74.3 million to help accelerate

priority gas supply projects identified in the Interim National Gas Infrastructure Plan

and help realise the opportunities in the North Bowen and Galilee Strategic Basins.

The Government is taking decisive action to support local oil refineries as part of its

commitment to Australia’s long-term fuel security. This includes the introduction of a

production payment to support local refineries and upgrade infrastructure to continue

operating in Australia. This follows on from the six-month interim production payment

provided in the 2020-21 MYEFO.

The Government is examining supply chain vulnerabilities for critical products, starting

with personal protective equipment (PPE), medical products and agricultural

production chemicals, which will inform initial investments under the $107.2 million

Supply Chain Resilience Initiative. The Government is also establishing an Office of

Supply Chain Resilience to monitor vulnerabilities and coordinate

whole-of-government responses to improve ongoing access to essential goods.

Enhancing our disaster resilience

The 2021-22 Budget provides funding to implement key elements of the Government’s

response to the Royal Commission into National Natural Disaster Arrangements and

strengthen the nation’s ability to prepare for, respond to and recover from natural

disasters. The Government will provide $615.5 million over six years for the Preparing

Australia grants program to support disaster risk reduction activities. As part of the

$2 billion National Bushfire Recovery Fund, $280.0 million will be committed to

establish a grants program to support the ongoing recovery needs of communities

affected by the 2019-20 bushfires.

The Government will provide $61.1 million to establish the new National Recovery and

Resilience Agency to drive the reduction of natural disaster risk, enhance natural

disaster resilience, and ensure effective relief and recovery from all hazards, and

$90.0 million to enhance the operation of Emergency Management Australia to ensure

better informed and timely government decision making during emergencies.



To transform the Commonwealth’s capacity to prepare for extreme events and a

changing climate, the Government will invest $209.7 million to establish the Australian

Climate Service (ACS). The ACS will provide the intelligence, insights and analysis for

Emergency Management Australia and the National Recovery and Resilience Agency to

understand and support decisions on climate and disaster risk.

The Government is committed to improving the affordability and availability of

insurance for households and small businesses in Northern Australia. The Government

therefore intends to establish a reinsurance pool for cyclones and related flooding,

backed by a $10 billion Government guarantee, for properties in areas subject to high

cyclone risk.

Resilient regions

The Government is providing $537.6 million to support continued growth in regional

Australia. Successful and resilient rural and regional economies will be better able to

withstand economic shocks and contribute to national economic activity.

Through the Our North, Our Future Next Five Year Plan for Northern Australia, the

Government is providing $189.6 million over five years to create jobs and support

sustainable economic growth in Northern Australia. The Plan supports initiatives

targeted to the needs of the North, including helping businesses grow, investing in areas

of regional strength and enhancing digital connectivity.

The Government is providing communities with $250 million under a sixth round of the

Building Better Regions Fund. This will create jobs and build stronger regional

communities by funding new or upgraded infrastructure and community development

activities. The Government is also investing $84.8 million to improve internet and mobile

access in regional Australia.

Boosting farm productivity and protecting our agricultural industry

A vibrant and successful rural and regional Australia needs a strong agricultural sector.

The Government is therefore helping the industry grow and become more profitable to

help reach its goal of $100 billion farm gate output by 2030.

To protect Australian farmers from pest and weed outbreaks, the Government is

committing $414.5 million to enhance Australia’s biosecurity, including by:

• enhancing digital capability to better assess risk through advanced diagnostics,

modelling and on the ground data collection

• targeting specific biosecurity threats, for example, investment on the front lines to

stop African Swine Fever.



The Government is helping farmers expand and grow their exports, providing

$87.7 million to increase market intelligence, agriculture counsellors and technical

experts. $29.8 million is being provided to help farmers attract and retain a high-skilled

workforce. The Government’s $237.9 million investment in soils will also help increase

on-farm profitability and help reduce our carbon emissions.

Drought Proofing Our Future

Under the National Water Grid Fund (NWGF), the Government is providing $3.5 billion

to help ensure reliable water supply in regional Australia. From the NWGF, $258 million

will establish a new funding pathway for small-scale water infrastructure and fund the

development of new dams and irrigation projects, including secure water supply for the

Eurobodalla region.

The Government is securing water for river health by investing $1.3 billion in off-farm

irrigation infrastructure. Farmers will be better prepared for variable rainfall through

the Government’s investment in Murray-Darling Basin water modelling tools. In

addition, $23.0 million as part of the $5 billion Future Drought Fund will help farmers

manage their soil moisture.

These policies will improve the reliability of Australia’s water supply, support irrigators

and allow communities to better manage their water resources.

Caring for the environment

Reducing emissions

Under the Paris Agreement, the Australian Government has committed to reducing

emissions by 26 to 28 per cent below 2005 levels by 2030. To support this commitment,

the Government is investing $1.6 billion to fund priority clean energy technologies. This

represents a practical, technology-focused approach to reducing emissions, while

supporting jobs and strengthening our economy.

Australia will play a leading global role by partnering with other nations to accelerate

the commercialisation of low emissions technologies. A $1.2 billion Technology

Co-Investment Facility will be established to invest in priority technologies and practical

project-based international partnerships. This includes $539.2 million for hydrogen and

carbon capture use and storage projects that will support Australian industry and create

jobs, and $565.8 million to establish international partnerships on practical low

emissions projects. The partnerships will leverage Australia’s comparative advantage

and help Australian industries take their share of emerging global low emissions

markets. The Government is also committing $316.7 million to help industry and

businesses reduce their emissions through voluntary action and adopting low emissions

technology.



Oceans leadership

To safeguard the health of our oceans and create jobs in the emerging blue economy, the

Government is investing $100.1 million in an Oceans Leadership Package. This includes

investments targeting ‘blue carbon’ ecosystems that involve seagrass and mangroves

that play a key role in drawing carbon out of the atmosphere.

Waste package

To ensure Australia takes responsibility for its own waste the Government is investing

$11.0 million to support Australia’s recycling industry, including further funding for the

National Product Stewardship Investment Fund and support for the Australasian

Recycling label to help consumers recycle properly. The Government is investing

$67.0 million to enhance organic waste facilities and support community education to

reduce the amount of food waste going to landfill. These investments support the

Government’s National Waste Policy Action Plan, which aims to reduce waste

generation, increase waste recovery rates and regulate waste exports.

EPBC Act Reform

In response to the Independent Review of the Environment Protection and Biodiversity

Conservation Act 1999, the Government is investing $29.3 million to ensure our

environmental laws are both protecting the environment and supporting economic

growth.

Through an investment of $4.7 million, the Government will work with stakeholders to

improve the measurement and valuation of Australia’s natural capital.

Keeping Australians safe

The Government is committed to strengthening our national security, defence and law

enforcement capabilities. It is providing $1.3 billion over ten years to the Australian

Security Intelligence Organisation to further boost its ability to protect Australia and

Australians from threats to our security. A further $51.8 million is being provided to

support the Australian Criminal Intelligence Commission’s critical role in combatting

transnational, serious and organised crime.

Building on Australia’s Cyber Security Strategy 2020, the Government is providing

$42.4 million to improve security arrangements for critical infrastructure and to assist

critical infrastructure owners and operators respond to significant cyber-attacks.

To support Australia’s strong border protection policies, the Government is providing

$464.7 million to bolster domestic detention capabilities and a further $38.1 million to

continue the Regional Cooperation Arrangement in Indonesia.

The Government remains committed to building Defence capability and supporting

Australia’s sovereign defence industry, including through its defence capability



investments valued at $270 billion over the next decade. Maintenance and development

of Australia’s 400 owned and approximately 958 leased properties continues to deliver

considerable economic, social and environmental support for regional communities,

including the recent $747 million defence infrastructure package in the

Northern Territory.

Statement 2: Economic Outlook | Page 31

Statement 2: Economic Outlook

This Statement presents the economic forecasts that underlie the Budget estimates.

Contents

Overview ....................................................................................................... 33

Outlook for the international economy ....................................................... 38

Outlook for the domestic economy ............................................................. 44 Outlook for real GDP growth ......................................................................................... 44 Households ................................................................................................................... 46 Business investment ..................................................................................................... 51 Public final demand ....................................................................................................... 55 Net exports .................................................................................................................... 55 The labour market ......................................................................................................... 57 Outlook for nominal GDP growth .................................................................................. 63

Medium-term projections ............................................................................. 65


Statement 2: Economic Outlook

Overview

The Australian economy has displayed remarkable resilience in the face of the

COVID-19 pandemic. Following the first recession in almost 30 years over early 2020,

the economy grew at its fastest pace on record over the latter half of the year and

outperformed all major advanced economies in 2020. Labour market outcomes have

surpassed even the most optimistic of expectations. With close to one million jobs added

to the economy since May 2020, employment levels have more than recovered the losses

seen through the pandemic to reach record highs. The peak in the unemployment rate

is now expected to have passed and labour force participation has increased to a record

high.

Together with the success in managing the spread of the COVID-19 virus, the

Government’s significant fiscal policy response has been central to Australia’s economic

performance throughout the pandemic. Immediate temporary, targeted assistance to

individuals, households and businesses provided a crucial lifeline to the economy

during the worst of the downturn and the Government’s total economic support

response to the crisis now stands at $291 billion or around 14.7 per cent of GDP. As the

recovery continues and emergency support concludes, additional assistance focused on

supporting private sector activity remains in place to underpin the recovery over the

forecast period. Further measures announced as part of this Budget, such as extensions

to temporary full expensing, temporary loss carry-back and the low and middle income

tax offset will further support strong growth in economic activity over the forecast

period, helping to drive the unemployment rate lower.

The global economic recovery is also gathering pace, with stronger-than-expected

activity in the December quarter of 2020 for most major trading partners. Further

progress on vaccine rollouts in advanced economies, major fiscal policy support and

accumulated household savings have all contributed to increased confidence in the

global economic outlook. However, the pace of recovery is uneven and significant risks

to the global outlook remain, heightened by ongoing outbreaks of the virus in major

economies, most notably in India.

The outlook for the Australian economy has strengthened and output is expected to

have exceeded its pre-pandemic level in the March quarter of 2021, nine months earlier

than forecast last Budget. Real GDP grew strongly over the

September and December quarters of 2020 and recovered around 85 per cent of the fall

since the onset of the pandemic. Growth in economic activity has also been supported

by strong employment outcomes. Employment increased to a record high in

March 2021, with almost 75,000 more people employed than prior to the pandemic.

| Budget Paper No.1

Page 34 | Statement 2: Economic Outlook

Following the strong rebound in economic activity to date, recent record rates of growth

are expected to moderate as the economy transitions from the initial reopening phase of

the recovery. Nevertheless, ongoing momentum, the rollout of the vaccine and

continued fiscal policy support, including new initiatives announced as part of this

Budget, are expected to drive strong growth over the forecast period. Real GDP is

forecast to grow by 1¼ per cent in 2020-21, by 4¼ per cent in 2021-22 and 2½ per cent

in 2022-23.

Robust growth over the forecast period is expected to drive continued steady growth in

employment and further declines in the unemployment rate, which is forecast to fall

below 5 per cent by late 2022, to reach 4¾ per cent in the June quarter 2023. This would

mark the first time that Australia has seen a sustained period of unemployment below

5 per cent since the years leading up to the Global Financial Crisis, and only the second

time since the early 1970s.

A lower-than-expected peak and faster-than-anticipated fall in the unemployment rate

is expected to reduce the potential for scarring in the labour market and support growth

in the medium term. This has also helped to sustain household incomes and has

supported ongoing strength in consumer activity.

The outlook for household spending and housing construction has strengthened.

Consumer sentiment has recovered substantially and is currently at its highest level in

11 years, with household consumption rebounding at record rates over the

second half of 2020. Robust activity in the housing market has also been sustained,

reflecting Commonwealth, state and territory government programs to support first

home buyers and residential construction, as well as highly accommodative monetary

policy settings, which are expected to remain in place for some time.

In the business sector, the Government’s business tax incentives have provided a key

boost to business investment and are expected to continue to support the outlook in the

near term. Overall, while new business investment will take some time to fully recover

from the uncertainty following the recession, business conditions reached a record high

in March 2021, confidence indicators have recovered to be well above average and there

has been an improvement in firms’ capital expenditure intentions, with some measures

at their highest level since 1994.

As international borders reopen and international tourism gradually returns over 2022,

spending from incoming tourists is expected to be more than offset by Australians

spending more on overseas travel and less on domestic consumption. However, the

gradual arrival of international students and migrants over 2022 will support growth,

particularly for education services exports and consumption, and assist in filling skill

gaps.

Budget Paper No.1 |


The recent strength in key commodity prices, particularly iron ore, has seen a significant

resurgence in Australia’s terms of trade and has supported profitability in the mining

sector, the benefits of which will flow through to the broader economy. As a result,

nominal GDP is expected to grow strongly in the near term, before moderating to grow

at a slower pace than real GDP, as strength in the terms of trade unwinds over the

forecast period.

Overall, the outlook remains positive, though considerable risks remain. The continued

economic recovery will rely on the effective containment of COVID-19 outbreaks both

here and abroad. This will be a key factor in the timing of the reopening of international

borders, which could weigh on the outlook for the tourism and education sectors. More

broadly, downside risks to the outlook for the global economy from ongoing outbreaks

of the virus in major economies, including India, could also have implications for

Australia’s economy.

| Budget Paper No.1


Box 2.1: Key assumptions underpinning the economic forecasts

The control of the virus in Australia and globally remains a significant risk to the economic outlook. The key assumptions that underpin the economic forecasts are set out below. Outcomes could be substantially different to the forecasts, depending upon the extent to which these assumptions hold.

• The first phase of Australia’s vaccination program, our COVID-19 Vaccine and Treatment Strategy, commenced in late February 2021 with most priority populations having been vaccinated. It is assumed that a population-wide vaccination program is likely to be in place by the end of 2021.

• During 2021, localised outbreaks of COVID-19 are assumed to occur but are effectively contained.

• While most domestic activity restrictions have been lifted, it is assumed that general social distancing restrictions and hygiene practices will continue until medical advice recommends removing them. The lifting of domestic activity restrictions will help support consumer and business activity.

• It is assumed that there are no extended or sustained state border restrictions in place over the forecast period.

• A gradual return of temporary and permanent migrants is assumed to occur from mid-2022. Small phased programs for international students will commence in late 2021 and gradually increase from 2022. The rate of international arrivals will continue to be constrained by state and territory quarantine caps over 2021 and the first half of 2022, with the exception of passengers from Safe Travel Zones.

• Inbound and outbound international travel is expected to remain low through to mid-2022, after which a gradual recovery in international tourism is assumed to occur.

Budget Paper No.1 |


Table 2.1: Domestic economy — detailed forecasts(a)

Outcomes(b) Forecasts

2019-20 2020-21 2021-22 2022-23

Real gross domestic product -0.2 1 1/4 4 1/4 2 1/2

Household consumption -3.0 1 1/4 5 1/2 4

Dwelling investment -8.1 2 1/2 0 -1 1/2

Total business investment(c) -2.0 -5 1 1/2 10

By industry

Mining investment 6.8 1/2 3 3 1/2

Non-mining investment -4.5 -6 1/2 1 1/2 12 1/2

Private final demand(c) -3.2 3/4 4 1/2 4 1/2

Public final demand(c) 5.5 5 3/4 5 1 3/4

Change in inventories(d) -0.3 1/4 0 0

Gross national expenditure -1.4 2 1/2 4 3/4 3 3/4

Exports of goods and services -1.8 -8 4 3

Imports of goods and services -7.4 -4 6 1/2 9 1/2

Net exports(d) 1.2 -1 - 1/4 -1 1/4

Nominal gross domestic product 1.7 3 3/4 3 1/2 2

Prices and wages

Consumer price index(e) -0.3 3 1/2 1 3/4 2 1/4

Wage price index(f) 1.8 1 1/4 1 1/2 2 1/4

GDP deflator 1.9 2 1/2 - 1/2 - 1/2

Labour market

Participation rate (per cent)(g) 63.4 66 1/4 66 1/4 66

Employment(f) -4.2 6 1/2 1 1

Unemployment rate (per cent)(g) 6.9 5 1/2 5 4 3/4

Balance of payments

Terms of trade(h) 0.9 10 -8 -10 1/2

Current account balance (per cent of GDP) 1.8 3 3/4 1 1/4 -2 1/4

(a) Percentage change on preceding year unless otherwise indicated. (b) Calculated using original data unless otherwise indicated. (c) Excluding second‑hand asset sales between the public and private sector. (d) Percentage point contribution to growth in GDP. (e) Through-the-year growth rate to the June quarter. (f) Seasonally adjusted, through‑the‑year growth rate to the June quarter. (g) Seasonally adjusted rate for the June quarter. (h) The detailed forecasts are underpinned by price assumptions for key commodities: Iron ore spot price

assumed to decline to US$55/tonne free on board (FOB) by the end of the March quarter 2022; metallurgical coal spot price assumed to remain at US$112/tonne FOB; and thermal coal spot price assumed to remain at US$93/tonne FOB.

Note: The detailed forecasts for the domestic economy are based on several technical assumptions. The exchange rate is assumed to remain around its recent average level — a trade‑weighted index of around 64 and a $US exchange rate of around 77 US cents. Interest rates are assumed to move broadly in line with market expectations. World oil prices (Malaysian Tapis) are assumed to remain around US$65/barrel. Population growth is around 0.1 per cent in 2020-21, 0.2 per cent in 2021-22 and 0.8 per cent in 2022-23.

Source: ABS Australian National Accounts: National Income, Expenditure and Product; Balance of Payments and International Investment Position, Australia; Labour Force Survey, Australia; Wage Price Index, Australia; Consumer Price Index, Australia; unpublished ABS data and Treasury.

| Budget Paper No.1


Outlook for the international economy

The COVID-19 pandemic has resulted in the largest contraction in global economic

activity since the Great Depression. Global GDP fell by 3.3 per cent in 2020, as mobility

and economic activity were restricted to limit the spread of the virus and in response to

rising uncertainty. Notwithstanding the health and economic challenges presented by

the pandemic, Australia’s economic growth outperformed all major advanced

economies in 2020.

Chart 2.1: Real GDP growth in 2020, Australia and the G7 economies

-12

-10

-8

-6

-4

-2

0

-12

-10

-8

-6

-4

-2

0

Australia United

States

Germany Japan Canada France^ Italy United

Kingdom

%%

^Data are seasonally adjusted. Source: National statistical agencies.

The outlook for the global economy has strengthened and global GDP is now expected

to grow by 6 per cent in 2021. Positive outcomes across the latter part of 2020, progress

on vaccine rollouts across a range of countries, major additional government spending—

most notably in the United States—and accumulated household savings have all

contributed to increased confidence in the global economic recovery. However, the pace

of recovery is uneven, with some economies, such as China, having already returned to

pre-pandemic levels of economic activity, while others, like the euro area, are not

expected to do so until 2022.

The recovery has also been uneven in international labour markets, with some countries

recovering to pre-pandemic levels of employment faster than others. Compared with

major advanced economies who have published data for March 2021, Australia is the

first economy to have recovered hours worked and employment levels to pre-pandemic

levels. For further details on international comparisons of the labour market see Budget

Statement 4: The labour market through COVID-19.

Budget Paper No.1 |


Chart 2.2: Employment levels, Australia and the G7 economies

82

84

86

88

90

92

94

96

98

100

102

82

84

86

88

90

92

94

96

98

100

102

Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21

Australia

Canada

UnitedStates

Japan

United Kingdom

Italy

France^Germany

Index (Dec-19=100) Index (Dec-19=100)

^Data are quarterly and latest data are for the December quarter. Note: Data are monthly unless otherwise specified. UK employment data are a 3-month average from

December 2020 to February 2021. Due to definitional differences, care must be taken when comparing employment data across countries. Data are up to date as at 6 May 2021.

Source: Refinitiv, National statistical agencies and ABS Labour Force Survey, Australia.

Fiscal support from policy makers has been central to the global economic response to

the pandemic. The IMF estimates that overall global support in response to the

pandemic totals nearly $US 16 trillion (15.3 per cent of 2020 global GDP) since

January 2020. Of this total, direct health and economic fiscal support accounts for almost

$US 10 trillion (9.2 per cent of 2020 global GDP), with the remainder comprised of loans,

guarantees and other support. The majority of this support has been undertaken by the

G20, with G20 advanced economies accounting for over 80 per cent of overall global

support and G20 emerging economies accounting for a further 10 per cent. It is

important to note that countries have taken different approaches in response to the

pandemic in line with their domestic circumstances, with the amount and design of

fiscal support measures varying across jurisdictions.

The economic recovery has also been supported by highly accommodative monetary

policy settings from global central banks. With low inflation across many countries prior

to the pandemic resulting in central banks reducing policy rates to the zero lower bound,

unconventional monetary policy measures such as asset purchase programs and lending

facilities were also implemented to stimulate economic activity. Central banks have

signalled that policy settings will remain stimulatory for some time, with some requiring

actual employment and inflation outcomes to consistently meet targets before changes

to policy setting will be considered.

| Budget Paper No.1


High COVID-19 transmission rates and ongoing containment measures continue to

weigh on activity abroad. However, the severity of their impact on economic activity

has moderated since the initial wave of the virus, as consumer and business behaviours

have evolved and adapted over the course of the pandemic. Following its deep

contraction in 2020, global GDP is expected to recover to pre-pandemic levels in 2021

and is forecast to grow by 4¼ per cent in 2022 and 3½ per cent in 2023.

An improving outlook for global economic growth is supported by ongoing

developments in vaccine rollouts, particularly in economies experiencing high rates of

virus transmission and stricter containment measures. The forecasts assume that

countries relax their internal containment measures and confidence improves

throughout 2021, and that vaccine coverage expands throughout 2021 and 2022.

Global economic activity is expected to recover as the increasing vaccine coverage

reduces both the need for containment measures and serious health impacts arising from

the pandemic. However, uncertainty around the timing, progress, ongoing efficacy and

uptake of vaccine rollouts, which is heightened by the emergence of new virus variants,

presents downside risks to the global economic outlook.

Global and Australian financial market conditions are accommodative and are

supporting the recovery. Yields on government bonds have risen in recent months,

reflecting optimism about the outlook for growth and corporate profits, but remain low

on an historical basis. Nevertheless, financial market conditions remain sensitive to the

outlook for growth and the continued provision of policy stimulus. In addition, some

emerging market economies with high levels of external debt or debt denominated in a

foreign currency could, in the event of a rise in global interest rates, experience a rapid

outflow of capital and a sharp currency depreciation.

Despite significant improvements to the overall outlook, the global economic recovery

is likely to be uneven. In general, advanced economies are expected to return closer to

their pre-pandemic trajectories for GDP than emerging market economies in coming

years. This reflects a broad trend of earlier vaccine access, more accommodative policy

conditions, and greater fiscal capacity in advanced economies. By comparison, the

outlook for emerging market economies is more varied. Slower vaccine rollouts will

weigh on recoveries, particularly in regions that are experiencing high virus caseloads,

or are more reliant on contact-intensive industries and international travel.

Despite the uneven global recovery, Australia’s major trading partners (MTP)

weathered the global economic downturn comparatively well, contracting by

1.8 per cent in 2020, outperforming global GDP more broadly which contracted by

3.3 per cent in the same period. MTP is also forecast to grow faster than the global

economy, by 6½ per cent in 2021, partly reflecting China’s larger weighting within

Australia’s MTP basket. MTP is expected to grow by 4¼ per cent in 2022.

Budget Paper No.1 |


Significant uncertainty around the global economic outlook remains. Sustained

momentum in the global recovery will depend on how well governments continue to

manage the pandemic, along with people’s ongoing willingness to adapt to life with the

virus. Some economies, such as the United States, have remained relatively open and

achieved favourable economic outcomes despite high virus caseloads. Other economies

currently experiencing major outbreaks, most notably India, have so far avoided strict

national containment measures, however the health and economic implications are still

unknown. It remains to be seen whether relative openness in the face of virus outbreaks

is sustainable over the longer-term, particularly in regions where public health services

are at or beyond their capacity.

In China, GDP is forecast to grow by 8½ per cent in 2021 and 5¼ per cent in 2022. The

economy recovered at a stronger-than-expected pace in the second half of 2020,

underpinned by a continued expansion in industrial production, property investment,

and exports. However, renewed travel restrictions over the Spring Festival period in

response to a COVID-19 outbreak have slowed activity in the March quarter of 2021,

and a slow recovery in consumption is expected to exert ongoing downwards pressure

on growth. Over the remainder of the forecast period, China’s economic growth is

expected to normalise towards pre-pandemic trends.

In the United States, GDP is forecast to grow by 6¼ per cent in 2021 and 3½ per cent

in 2022. Across the past two quarters, the economy continued to expand through the

peak of a severe third wave of COVID-19 infections, and substantial progress in the

nation’s vaccine rollout is expected to enable a meaningful reduction in social distancing

in the first half of 2021. Already unprecedented levels of stimulus have been bolstered

by the $US 1.9 trillion American Rescue Plan Act, equivalent to around 9 per cent of

US GDP and over 2 per cent of global GDP, which will further support activity. This

expenditure, which is frontloaded over the next two years, is expected to drive a strong

recovery in US demand, which is expected to spill over to the global economy. There are

upside risks to the forecast, particularly if recoveries in confidence and the labour

market are stronger than expected, or if further spending is legislated.

Euro area GDP is forecast to grow by 4½ per cent in 2021 and 4 per cent in 2022. The

European recovery has been disrupted as major economies reimposed containment

measures in response to rising infections in the final quarter of 2020 and the first quarter

of 2021, seeing the region fall into a double-dip recession. While the economic impact of

these measures has so far been less severe than during the first wave of COVID-19, high

caseloads and ongoing restrictions will continue to weigh on activity in the first half of

2021. Improving vaccine coverage is expected to enable a fuller recovery across the

second half of the year, underpinned by rebounding consumption. Ongoing

government support remains strong, with payments from the NextGenerationEU

recovery fund due to commence in 2021. More broadly within the region, the recovery

in the United Kingdom is likely to outpace that of the euro area in the near term, as its

| Budget Paper No.1


economy reopens following its strict lockdown in early 2021 and its rapid vaccination

rollout.

In Japan, GDP is expected to grow by 3½ per cent in 2021 and 1¾ per cent in 2022.

Containment measures have slowed the recovery in domestic consumption from

January this year. However, continued growth in exports is softening the economic

impacts of the pandemic, including by spurring business investment. Overall, growth

in 2021 is expected to be buoyed by increasing confidence as vaccinations are rolled out

in earnest from mid-2021, supported by fiscal stimulus measures and accumulated

household and corporate savings. Japan is expected to return to long-term potential

growth rates from 2023, which are lower than most other advanced economies, owing

to a pre-pandemic trend of a declining working-age population.

GDP in Other East Asia is forecast to grow by 4¾ per cent in 2021, and 4 per cent in

2022. Most economies in the region continued to recover in the December quarter of

2020, although momentum slowed for those that implemented further restrictions such

as Malaysia. The outlook, and pace of recovery varies across the region. Korea, Taiwan

and Vietnam have continued to experience limited virus transmission and have boosted

production and exports, while Indonesia’s economy has picked up on the back of strong

policy support and exports. Differences in recovery trajectories across the region reflect

country-specific factors such as the persistence of virus transmission, fiscal capacity and

each economy’s structure. For example, some countries have higher reliance on

contact-intensive industries which may lengthen their recovery, relative to countries

which rely more strongly on exports of manufactured goods or commodities. Uneven

vaccine rollouts across the region will prolong international travel restrictions, and risk

further outbreaks. Risks related to financial market volatility and renewed capital

outflows also remain.

India’s GDP is forecast to grow by 11 per cent in 2021 and 5¾ per cent in 2022. India is

currently facing one of the worst outbreaks of COVID-19 seen during this pandemic.

The rapidly evolving situation has added significant downside risks to the outlook,

though the full impact on health and economic outcomes remain to be seen. Despite this,

the recovery is expected to remain positive, driven by strong resumption in supply-side

activity through the second half of 2020. Banking reforms announced in the Indian

2021-22 Budget are expected to support financial-sector resilience and recovery.

Nevertheless, economic activity is forecast to remain well below the pre-pandemic

trajectory in the near term.

Budget Paper No.1 |


Table 2.2: International economy forecasts(a) Outcomes Forecasts

2020 2021 2022 2023

China 2.3 8 1/2 5 1/4 5 1/2

India -6.9 11 5 3/4 7

Japan -4.8 3 1/2 1 3/4 3/4

United States -3.3 6 1/4 3 1/2 1 3/4

Euro area -6.6 4 1/2 4 2

Other East Asia (b) -2.3 4 3/4 4 4

Major trading partners (c) -1.8 6 1/2 4 1/4 4

World (c) -3.3 6 4 1/4 3 1/2

(a) World and Other East Asia growth rates are calculated using GDP weights based on purchasing power parity (PPP), while growth rates for major trading partners are calculated using goods and services export trade weights.

(b) Other East Asia comprises the Association of Southeast Asian Nations group of five (ASEAN‑5), comprising Indonesia, Malaysia, the Philippines, Thailand and Singapore, along with Hong Kong, South Korea, Vietnam and Taiwan.

(c) Growth rates are estimates in 2020 rather than outcomes. Source: National statistical agencies, International Monetary Fund, Refinitiv and Treasury.

| Budget Paper No.1


Outlook for the domestic economy

Outlook for real GDP growth

The recovery in real economic activity from the COVID-19 recession has continued to

outperform expectations. On the back of strong growth in the September quarter of 2020,

real GDP grew by 3.1 per cent in the December quarter of 2020, and marked the first

time on record when Australia has experienced two consecutive quarters of economic

growth above 3 per cent (Chart 2.3). Growth over the December quarter was

broad-based across most components with strength in household consumption,

business investment, residential construction and favourable conditions in the

agricultural sector, which saw near-record levels of farm production in late 2020.

Chart 2.3: The recovery in real GDP

Source: ABS Australian National Accounts: National Income, Expenditure and Product and Treasury.

The Government’s significant fiscal policy response has been central to Australia’s

economic performance throughout the pandemic, with the total economic support

response now amounting to $291 billion. Initial temporary, targeted support measures,

including JobKeeper, JobSeeker and Boosting Cash Flow for Employers helped to limit

uncertainty, shielded households and businesses from the worst effects of the pandemic,

and enabled Australia to respond to the health crisis.

As emergency economic support concludes, fiscal policy measures aimed at stimulating

private sector-led growth are supporting a strong recovery in economic activity and

employment. Targeted support has also provided ongoing relief to sectors particularly

affected by the pandemic. The Government’s personal income tax changes and business

tax incentives will continue to support economic activity and employment over the next

few years. These measures have been enhanced in this Budget, with temporary full

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0

2

4

6

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-4

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0

2

4

6

Dec-10 Dec-15 Dec-20

%%

Quarterly growth in real GDP

Through-the-year growth in real GDP

450

470

490

510

530

550

450

470

490

510

530

550

Jun-17 Jun-19 Jun-21 Jun-23

$b$b

Real GDP

Forecasts

Budget Paper No.1 |


expensing and temporary loss carry-back extended until 2022-23 and the low and

middle income tax offset retained for an additional year.

The Reserve Bank of Australia (RBA) has also played an important supportive role in

the response to the pandemic by helping to keep borrowing costs low and by supporting

the flow of credit across the economy. With the cash rate close to the zero lower bound

at the onset of the pandemic, the RBA reduced the cash rate target by 65 basis points to

0.1 per cent and took a range of unprecedented unconventional monetary policy actions

to support economic activity. This included setting a target for the three-year Australian

Government bond yield, currently 0.1 per cent, and implementing a bond purchasing

program, which the RBA estimates has led to longer-term yields being 30 basis points

lower than otherwise. Accommodative monetary policy settings are expected to remain

in place for some time, with the RBA not expecting conditions to warrant an increase in

the cash rate until 2024 at the earliest.

The outlook for real GDP has strengthened in the near term and is forecast to grow by

1¼ per cent in 2020-21, rising to 4¼ per cent in 2021-22 before moderating to 2½ per cent

in 2022-23 as the recovery in economic activity stabilises. After falling by 2.5 per cent in

2020, real GDP is expected to grow by 5¼ per cent in 2021, and by 2¾ per cent in 2022.

The near-term strengthening in real GDP is broad-based and reflects a stronger outlook

for household consumption, dwelling investment and new private business investment.

The conclusion of the JobKeeper Payment is not expected to interrupt the recovery in

the labour market, nor hinder growth in the broader economy. The labour market is

forecast to continue strengthening over 2021-22 and 2022-23 with ongoing growth in

employment, strong labour force participation and the unemployment rate falling to

below 5 per cent by late 2022.

Looking further ahead, continued growth in household consumption is expected to

moderate as the recovery stabilises. As the international border reopens, net exports are

also expected to weigh on growth, with outbound tourism activity more than offsetting

that of inbound tourists. In addition, demand for imported goods is expected to increase.

However, the gradual arrival of international students and migrants over 2022 will

support economic growth, particularly for education services exports and consumption.

Net overseas migration is significantly affected by international travel restrictions and

weaker labour markets globally. It is forecast to fall from around 194,000 persons in

2019-20 to be around -97,000 persons by the end of 2020-21, and then to -77,000 in 2021-22

before increasing to 235,000 persons in 2024-25. More broadly, the weak outlook for

population growth in the near term as a result of border closures will also weigh on the

outlook for real GDP growth.

Overall, the strong and broad-based momentum in the economy is expected to see real

GDP continue to grow by 2¼ per cent in 2023-24 and 2½ per cent in 2024-25.

| Budget Paper No.1


Households

Household activity has continued to recover from the pandemic-driven downturn, with

stronger-than-expected outcomes for household consumption and dwelling investment

through late 2020 and continued strength in leading indicators for 2021.

By late 2020, household consumption had recovered around 80 per cent of the fall since

the onset of the pandemic, following record growth of 7.9 per cent in the

September quarter of 2020 and further strong growth of 4.3 per cent in the

December quarter of 2020. Growth over the December quarter was driven by the

reopening of Victoria from the extensive lockdown and the strongest quarterly rise on

record for vehicle purchases. Overall, strength in goods spending has supported the

recovery to date (Chart 2.4). The pace of growth is expected to have slowed in the March

quarter of 2021 as the boost from the reopening dissipates. Overall, strong growth

outcomes and elevated retail spending indicators have contributed to an upgrade to the

outlook for household spending in 2020-21.

Chart 2.4: Household consumption

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Source: Unpublished ABS data

Chart 2.5: Consumer sentiment

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Household consumption is forecast to grow by 1¼ per cent in 2020-21, by 5½ per cent in

2021-22 and by 4 per cent in 2022-23. The solid outlook for growth reflects strong

household balance sheets and improving labour market conditions. Household balance

sheets have been strengthened by the Government’s fiscal policy support, high saving

rates during most of 2020 and increased asset prices, including the recent growth in

housing prices. Growth in household spending will be further supported by the

continued easing of restrictions and robust consumer confidence. Consumer sentiment

is currently at its highest level in 11 years (Chart 2.5). Aggregate household consumption

is expected to return to pre-pandemic levels in mid-2021, as spending patterns in the

Budget Paper No.1 |


two largest states, New South Wales and Victoria return toward pre-pandemic levels.

While strength in goods spending has supported the recovery to date, looking forward,

growth is expected to be driven by a recovery in the consumption of services.

The faster-than-anticipated recovery in the labour market will provide support to

households, as emergency fiscal support concludes. The JobKeeper Payment provided

critical support to household incomes over the course of the crisis and household gross

disposable income remained almost 5 per cent higher through the year to the

December quarter of 2020. This occurred despite the reduction in JobKeeper assistance,

which roughly halved in the quarter, and the reduction in the Coronavirus Supplement.

The household saving ratio declined in the quarter and, though it remains elevated at

around 12 per cent, it is expected to decline further with improving confidence and

greater consumption options.

Continued episodes of short, sharp lockdowns pose downside risks to the outlook for

consumer spending through a dampening effect on confidence. Analysis of recent

localised lockdowns suggests that while consumption typically rebounds quickly, the

level of aggregate consumption over the period is lower than in areas that didn’t

experience a lockdown.

Dwelling investment has continued to strengthen amid robust housing market

fundamentals, including record low interest rates and stimulatory housing policy

incentives from Commonwealth, state and territory governments — including the

HomeBuilder program (Box 2.2). The housing market rebounded in the second half of

2020 and this has continued into early 2021 with sustained strength in building

approvals and owner-occupier lending, including to first home buyers (Chart 2.6).

Housing prices have risen significantly in early 2021 and these have been broad-based

across the country, with regional growth outpacing rises in capital cities.

| Budget Paper No.1


Chart 2.6: Dwelling investment and leading indicators

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Private sector house approvals (LHS)

Owner-occupier new loan commitments for the construction of dwellings (LHS)

Dwelling investment (RHS)

Source: ABS Australian National Accounts: National Income, Expenditure and Product, ABS Building

Approvals and ABS Lending Indicators.

Dwelling investment grew at its fastest pace in more than five years in the

December quarter 2020, driven by strength in detached housing construction and

renovation activity. Demand for established and new housing has predominantly been

driven by owner-occupiers, particularly first home buyers.

Dwelling investment is forecast to grow by 2½ per cent in 2020-21 as the large pipeline

of work supports construction activity over the next year. Dwelling investment is

expected to remain strong, with flat growth in 2021-22, before falling by 1½ per cent in

2022-23 as the elevated pipeline of work, which reflects some bring-forward in demand

for residential construction, winds down. The near-term strength in dwelling

investment is expected to be led by detached housing construction following

record-high house approvals over late 2020 and early 2021.

It is not yet clear what structural changes will result from the pandemic, particularly

given the greater propensity to work from home during the pandemic. Changing

preferences for more outer-city, spacious and detached housing may also limit growth

in apartment construction in coming years.

Budget Paper No.1 |


Box 2.2: Recent strength in the housing market

Australia is experiencing a renewed upturn in residential construction, spurred on by a range of government policies designed to support the sector, alongside record low interest rates. This has seen key leading indicators of residential construction activity surge to levels not seen in previous policy-led growth cycles and is providing significant benefits to the broader economy as it recovers from the pandemic.

Growth in residential construction activity supports growth in the broader economy in multiple ways, including through greater employment in the construction sector and associated industries. Additionally, as housing prices rise, household wealth grows and households who benefit from this are expected to increase their level of consumption as their confidence and financial position improves.

The Commonwealth Government’s HomeBuilder program was designed to mitigate the impacts of a significant fall in residential construction activity that was forecast in the early stages of the pandemic. This initiative has been highly successful and has driven a strong recovery in dwelling investment, which is now forecast to increase 2½ per cent in 2020-21 compared to a fall of 11 per cent forecast in the 2020-21 Budget. Announced in June 2020, the program provides eligible owner occupiers with a grant of up to $25,000 to build a new home or undertake substantial rebuilds of an existing home. Over 120,000 applications have been received, supporting over $30 billion of residential construction activity.

The HomeBuilder program is now supporting significant activity in detached housing construction, with private sector house approvals reaching a record-high level in March 2021 (Chart 2.7). This contrasts with the residential construction boom of the mid-2010s, which was driven by medium- and high-density housing.

There has been a significant increase in the number of new loans to owner-occupier first home buyers over the past year (Chart 2.8). The proportion of new loan commitments to owner-occupier first home buyers is around its highest level since 2009. Overall, in February 2021, the monthly number of new loan commitments for owner-occupier dwelling construction rose to its highest level since the series began in 2002 (Chart 2.6). This contrasts with the level of investor activity in the housing market, which, despite recent increases remains lower than in previous upturns.

| Budget Paper No.1


Box 2.2: Recent strength in the housing market (continued)

Chart 2.7: Private sector residential building approvals

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Medium-high density

Source: ABS Building Approvals.

Chart 2.8: Owner-occupier first home buyer new loan commitments

Source: ABS Lending Indicators.

Highly accommodative monetary policy settings, with record low interest rates and the RBA signalling they will remain in place for some time, have further supported demand for housing, by making it cheaper for prospective homeowners to take out a loan. Lending standards remain sound, although it will be important to continue to monitor standards as market conditions evolve.

This pickup in demand is also reflected in the recent increase in housing prices, which in March 2021 saw the fastest monthly growth in more than 30 years. In contrast to previous cycles, combined regional housing prices have outperformed combined capital city housing prices over the past year. Despite the strengthening in housing prices, record low interest rates have seen mortgage repayments as a proportion of disposable income lower than they were in the mid-2000s.

The near-term outlook for housing activity has strengthened considerably, supported by an elevated pipeline of construction work and rising house prices. However, the policy-driven strength in demand for detached house construction partly reflects a bring-forward in demand from future years and activity is expected to moderate as the current pipeline of work is completed. As the outlook for elevated levels of detached house construction unwinds, slower population growth is also expected to limit demand for higher-density dwellings in coming years, such that the recent strength in housing market activity is not expected to be sustained.

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Budget Paper No.1 |


Business investment

Following a large fall over the June and September quarters of 2020 amidst the height of

the pandemic, new business investment has picked up alongside Australia’s broader

economic recovery, supported by government policy incentives implemented in

response to the pandemic. Total new private business investment rebounded by

2.6 per cent in the December quarter of 2020, driven by robust demand for machinery

and equipment which grew at its fastest pace in almost seven years. In particular,

demand for vehicles and agricultural equipment picked up as firms benefitted from the

Government’s business tax incentives, and as favourable conditions in the agricultural

sector boosted farm production.

The outlook for new private business investment has strengthened considerably,

reflecting a stronger-than-expected pick up in late 2020, improvements in firms’ capital

expenditure expectations and additional strength from ongoing policy support. Total

new business investment is forecast to fall by 5 per cent in 2020-21 as a result of the

pandemic, though more moderately than previously expected. Growth is then expected

to rise by 1½ per cent in 2021-22 and by a further 10 per cent in 2022-23. Record business

conditions, improvements in business confidence, the strong rebound in economic

activity and the extension of business tax incentives are expected to bring forward

activity and underpin a significant recovery in investment in coming years.

Non-mining business investment is forecast to fall by 6½ per cent in 2020-21 before

rising by 1½ per cent in 2021-22 and by a significant 12½ per cent in 2022-23. Investment

activity in the non-mining sector rebounded by 3.0 per cent in the December quarter

of 2020. Robust fundamentals in the business sector are now evident, providing a strong

foundation for further growth in business investment. The Government’s extension of

the temporary full expensing and temporary loss carry-back measures announced as

part of this Budget will also provide significant continued support to non-mining

business investment, particularly machinery and equipment spending, within the

forecast period (Box 2.3).

| Budget Paper No.1


Box 2.3: Impacts of policy support on non-mining business investment

With the onset of the once-in-a-century COVID-19 pandemic in early 2020, substantial uncertainty over the economic outlook reverberated across the business sector, with business conditions, confidence and various activity indices all falling to never-before-seen lows.

In the early stages of the crisis, new private business investment was forecast to fall by more than 12 per cent in 2020-21, driven by a significant deterioration in the outlook for non-mining investment, which was forecast to fall by an unprecedented 25½ per cent in the June quarter of 2020 alone. Underpinning this rapid deterioration in the outlook were expectations of a record contraction in machinery and equipment investment, as mandated restrictions and associated reductions in economic activity looked set to stifle investment plans. Significant downgrades to forward-looking capital expenditure intentions became evident as firms sought to preserve cash flow, amid declining revenues and heightened risks of insolvencies.

With the rollout of the Government’s immediate, targeted fiscal policy response to the pandemic, a range of measures, including accelerated depreciation deductions and expansion of the instant asset write-off, were implemented to stimulate business investment, providing temporary tax incentives that reduce the after-tax cost of new capital investment and deliver cash flow benefits. Such measures, further enhanced through the introduction of the temporary full expensing and loss carry-back policies, have provided a strong incentive for businesses to bring forward investment activity to access the benefits before they expire.

In the months following the immediate response to the pandemic, outcomes for new business investment surprised on the upside. While non-mining business investment fell by 8.0 per cent over the six months to September 2020, this was considerably less weak than the double-digit falls anticipated in the early stages of the crisis (Chart 2.9). On the back of these lower-than-expected declines, non-mining business investment rebounded by 3.0 per cent in the December quarter of 2020, driven by an 8.1 per cent increase in total new machinery and equipment investment (Chart 2.10). This marked the largest quarterly rise in machinery and equipment spending in almost seven years, as firms took advantage of the Government’s business tax incentives.

Budget Paper No.1 |


Box 2.3: Impacts of policy support on non-mining business investment (continued)

Chart 2.9: Non-mining business investment

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(f)2021-22 Budget

2020 July Economic and

Fiscal Update

Note: (f) are forecasts. Source: ABS Australian National Accounts:

National Income, Expenditure and Product and Treasury.

Chart 2.10: New machinery and equipment investment

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%

Level (RHS)

Quarterlygrowth (LHS)

Source: ABS Australian National Accounts:

National Income, Expenditure and Product.

The outlook for the business sector has strengthened considerably and the latest December 2020 quarter ABS capital expenditure survey data suggest that firms’ capital investment intentions for 2020-21 have strengthened, while early indications for capital spending in 2021-22 are also positive (Chart 2.11). NAB capital expenditure intentions have also picked up, reaching its highest level since 1994. The improvement in investment intentions has been supported by a solid improvement in business conditions and confidence (Chart 2.12), which have recovered from record lows in 2020, with conditions reaching a record high in March 2021. Industry performance indicators have also reached some of their highest levels in over a decade.

| Budget Paper No.1


Box 2.3: Impacts of policy support on non-mining business investment (continued)

Chart 2.11: Non-mining CAPEX expectations

Chart 2.12: Business conditions and confidence

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Conditions

Net balance Net balance

Note: Lighter blue bar represents the previous expectation for 2020-21. Expectations data have been adjusted using long run realisation ratios (LHS chart).

Source: ABS Private New Capital Expenditure and Expected Expenditure and Treasury (LHS chart), NAB Monthly Business Survey (RHS chart).

On the back of strong indicators for a pick-up in business sector activity, new non-mining business investment is forecast to grow solidly over the forecast period, as Government policy such as temporary full expensing and temporary loss carry-back, remains in place to support the recovery in private sector-led growth. These key measures, including the extensions announced as part of this Budget, are estimated to apply to around $320 billion worth of investment. They are estimated to create around 60,000 jobs by the end of 2022-23 and boost GDP by around $2.5 billion in 2020-21, $7.5 billion in 2021-22 and $8 billion in 2022-23.

Mining investment is forecast to grow by ½ per cent in 2020-21, although the latest ABS

capital expenditure survey data suggests that some mining companies have reduced

investment intentions in 2020-21, amid heightened uncertainty from the pandemic.

Mining investment is then forecast to grow by 3 per cent in 2021-22 and by a further

3½ per cent in 2022-23. Early ABS survey data for investment intentions in 2021-22 are

positive and while strong iron ore prices have not led to expanded investment intentions

by major producers, investment to maintain large existing capital stocks and to bring

minor iron ore projects online will support mining investment. Recent announcements

also indicate that some companies are beginning to proceed with previously delayed

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Non-mining CAPEX

outcomes

Budget Paper No.1 |


projects as the global outlook improves. Santos has recently made a final investment

decision to proceed with the US $3.6 billion Barossa gas project off the coast of northern

Australia, with first gas production targeted for early 2025. This development flags the

first green light on delayed LNG investment in Australia since the onset of the

pandemic.

Public final demand

New public final demand will continue to make a notable contribution to growth in the

near term, as government assistance to steer the course of economic recovery continues.

New public final demand is expected to grow strongly by 5¾ per cent in 2020-21,

5 per cent in 2021-22 and by a further 1¾ per cent in 2022-23, driven by continued

spending on essential services and the robust infrastructure programs across

Commonwealth, state and territory governments. Public consumption remains

7.4 per cent higher through the year to the December quarter of 2020 and spending on

key essential services is expected to remain strong throughout the forecast period as the

health impacts of the pandemic are managed. Record funding of $17.7 billion to reform

aged care will also support growth in public final demand over the forecast period.

A significant investment of $13.2 billion in the National Disability Insurance Scheme,

and $2.3 billion to support mental health system reform will also contribute to growth.

Net exports

Net exports are forecast to detract from economic growth in coming years, driven by

increasing import activity, particularly tourism services imports, as international

borders reopen, travel restrictions ease and Australian’s resume overseas travel. Net

exports are forecast to detract 1 percentage point from real GDP growth in 2020-21,

reflecting increasing demand for imported goods from businesses and households. Net

exports are then expected to detract ¼ of a percentage point from growth in 2021-22

and 1¼ percentage points in 2022-23, driven by a recovery in outbound tourism which

is expected to be larger than inbound tourism once international border restrictions ease.

Falling education exports will also weigh on growth over this period as the number of

international students finishing their studies is expected to outpace the number of new

international students arriving in Australia.

Exports are forecast to fall by 8 per cent in 2020-21 before growing by 4 per cent

in 2021-22 and a further 3 per cent in 2022-23. Expected falls in the near-term are driven

by substantial falls in services exports as international border restrictions continue to

weigh on inbound tourism and international student numbers. Looking forward,

tourism exports are expected to increase following the easing of international border

restrictions but are not expected to return to pre-pandemic levels for some time.

| Budget Paper No.1


While the ongoing trade restrictions from China have had significant impacts on specific

firms and regions, many goods targeted by the restrictions have so far been successfully

re-directed to other export markets, with limited impacts on Australia’s overall

economic recovery.

Mining exports are expected to fall by 1½ per cent in 2020-21 as subdued global demand

from the COVID-19 downturn has weighed on coal and LNG production in 2020. While

recent flooding in NSW impacted some coal exporters in the latter part of March,

impacts on overall export volumes are not expected to be large as mines and

infrastructure are well placed to address seasonal disruptions and volumes had

recovered by early April. The pickup in global economic activity and the associated

recovery in global industrial production will support a recovery in export growth and

sustained demand for iron ore and coal exports. Mining exports are forecast to grow

by 5 per cent in 2021-22 and by 2½ per cent in 2022-23.

Rural export volumes are forecast to grow by 2 per cent in 2020-21 and by 9 per cent in

2021-22, supported by favourable conditions in the agricultural sector that have yielded

near-record levels of crop output in the latter half of 2020. Rural exports are then

expected to fall by 3 per cent in 2022-23 as an assumed return to more average seasonal

conditions sees rural production and exports returning to longer-term average levels.

Imports are forecast to fall by 4 per cent in 2020-21 as international border restrictions

continue to weigh heavily on tourism services imports. This is expected to be partially

offset by a strong recovery in consumption and capital goods imports. Imports are

expected to grow strongly, by 6½ per cent in 2021-22 and by 9½ per cent in 2022-23 as

the easing of international travel restrictions see tourism services recover and as goods

imports are supported further by the continuing domestic economic recovery.

Budget Paper No.1 |


The labour market

Australia’s labour market has shown remarkable resilience in the wake of the pandemic,

recovering faster than any major advanced economy and surpassing even the most

optimistic of expectations. More people are in work than ever before, with close to one

million jobs being created or restored since May 2020. By March 2021 almost 75,000 more

people were in work than before the pandemic. This, along with a

faster-than-anticipated fall in the unemployment rate and participation reaching a

record high, has laid a strong foundation for Australia’s economic recovery to continue.

Initial indicators suggest that the conclusion of the JobKeeper Payment will not hinder

growth in the broader economy and strong momentum in the labour market has been

sustained during the early stages of transition. In March 2021, employment reached a

record high, as the unemployment rate fell further to 5.6 per cent (Chart 2.13) and labour

force participation continued to rebound to reach a record high of 66.3 per cent.

Chart 2.13: Employment and the unemployment rate

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Note: (f) are forecasts. Dashed lines represent 2020-21 Budget forecasts. Source: ABS Labour Force and Treasury.

Overall, the outlook for the labour market is positive with increasing economic

momentum expected to support robust labour demand. Over the four weeks to 30 April,

immediately following the conclusion of JobKeeper, the number of people on the

JobSeeker Payment and Youth Allowance (other) has fallen by approximately 105,000.

Recent data for job advertisements, a key leading indicator for employment growth,

have significantly surpassed pre-pandemic levels. ABS Job Vacancies reached a record

high in February 2021. In March 2021, ANZ Job Ads were at their highest level since

November 2008, before increasing further in April 2021 to be 28 per cent higher than

their pre-pandemic level. The ratio of unemployed people to vacancies is now at its

lowest level in over a decade (Chart 2.14).

| Budget Paper No.1


Chart 2.14: Ratio of unemployed to vacancies and advertisements

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Australian Bureau of Statistics

National Skills Commission

ANZ

Source: ABS Labour Force, ABS Job Vacancies, National Skills Commission Internet Vacancy Index and

ANZ Job Ads.

Employment is expected to increase strongly by 6½ per cent in 2020-21, before

continuing to increase steadily by 1 per cent in both 2021-22 and 2022-23, reflecting the

broader pattern of economic growth over the rest of the forecast period and slower

population growth.

Employment increased by 321,000 across October 2020 to March 2021, through two

transitions in the JobKeeper Payment, and is now 947,000 persons higher than its trough

in May 2020 (Box 2.4). Hours worked has also increased by 13.0 per cent since May 2020,

to have grown 1.2 per cent through the year to March 2021. Though short, localised

lockdowns continue to have an effect, the number of people working zero hours for

economic reasons is now lower than it was before the pandemic. The extent of recovery

remains different across industries, with employment in several industries having

declined over the year to February 2021. Sectors impacted by restrictions, international

border closures and reduced tourism remain the most affected.

Budget Paper No.1 |


In contrast, other disparities that were evident across cohorts over the course of the

recovery have eased considerably. By region, employment in all states has now

recovered to near pre-pandemic levels, while female employment is 1.2 per cent higher

than it was in March 2020. Over the same period, full-time employment has returned to

pre-pandemic levels, while part-time employment is 1.9 per cent higher than in

March 2020. Younger workers were initially the most affected in terms of employment,

as industries adversely impacted by the pandemic, such as hospitality and tourism, are

heavily comprised of workers in this age cohort. While youth employment has

somewhat recovered, employment levels are still 2 per cent below pre-pandemic levels.

In addition to exposure to ongoing impacts in some of these industries, this cohort has

been impacted by the youth population steadily declining over the course of 2020,

reflecting international border closures. Looking through this effect, the

employment-to-population ratio for those aged 15-24 is 0.6 percentage points above

the March 2020 level.

Despite the strength of the recovery to date, there remain key uncertainties surrounding

the outlook for the labour market, posing both upside and downside risks. Ongoing

outbreaks of the virus and, to a lesser extent, the end of the JobKeeper Payment, present

near-term downside risks to the outlook, while longer-term risks associated with a

stronger- or weaker-than-expected recovery in migration and tourism may have

significant employment implications. The opening of borders is crucial for the recovery

of parts of the tourism and higher education industries, and the return of skilled

migrants will be key in filling skill shortages in some industries.

Box 2.4: JobKeeper and labour market recovery

The $89 billion JobKeeper Payment implemented in the early stages of the pandemic was the largest single fiscal measure in Australia’s history. By keeping workers connected to their employers during periods of lockdown and by supporting incomes over the course of the crisis, the JobKeeper Payment has played a pivotal role in the resilience of the economy during both the downturn and the economic recovery. The RBA has estimated that JobKeeper reduced total employment losses by at least 700,000 at the peak of the crisis (April–July 2020).1

1 Bishop J and Day I (2020), ‘How Many Jobs Did JobKeeper Keep?’, RBA Research Discussion

Paper 2020-07, November 2020.

| Budget Paper No.1


Box 2.4: JobKeeper and labour market recovery (continued)

JobKeeper supported over 3.8 million individuals, including employees and eligible business participants, and over one million organisations from March to September 2020. In doing so, the JobKeeper Payment was integral to mitigating the impacts on unemployment, underemployment and labour force participation that can persist after a downturn.

Around two million individuals transitioned off the JobKeeper Payment at the end of September 2020. Employment levels at firms that transitioned off JobKeeper at this time remained stable, while more broadly the labour market continued to recover with the creation of 498,000 jobs since September 2020 to March 2021.

In the March quarter of 2021, the JobKeeper Payment supported around 1.1 million individuals and around 385,000 organisations. This is around 650,000 fewer individuals than was estimated in the 2020-21 Budget, consistent with a faster than expected labour market recovery. The creative and performing arts, aviation and tourism related services, and road passenger transport (capturing taxis and ride sharing) sectors were amongst those most reliant on the JobKeeper Payment.

JobKeeper coverage was fairly evenly distributed across regions, although Sydney and Melbourne metropolitan areas, and tourism-dependent South East Tasmania and the Gold Coast, were particularly reliant.

Labour market improvements have also been evident in the number of hours worked by JobKeeper recipients, with the share of those working zero or very low hours (less than one day) declining over the program. For example, for those organisations that took part in the final stage of the program, the share of workers on zero or low hours declined from a peak of 22 per cent in May 2020 to around 11 per cent in March 2021.

As the labour market recovers, transitioning away from job retention schemes (like JobKeeper) towards policies that promote labour reallocation is important. The unwinding of the JobKeeper Payment is not expected to impede the broader economic recovery, which is expected to continue across 2021 and beyond. Early indicators are consistent with these expectations and will continue to be monitored closely.

For further information on the labour market recovery and the JobKeeper transitions, see Statement 4: The labour market through COVID-19.

Budget Paper No.1 |


The unemployment rate is forecast to fall to 5½ per cent by the June quarter of 2021 and

to continue to decline over the forecast period, with rapid falls in the near term expected

to moderate as the economic recovery stabilises. Continued policy support and

increasing momentum in the economy will see the unemployment rate return to its

pre-pandemic level in the December quarter of 2021. Beyond this, in line with continued

growth in employment, the unemployment rate is expected to decline steadily, to reach

5 per cent in the June quarter of 2022, before falling further to 4¾ per cent in the

June quarter of 2023. This would see the unemployment rate fall within the estimated

band for the Non-Accelerating Inflation Rate of Unemployment (NAIRU) by the

June quarter of 2022 and reach the bottom of the estimated band by the

June quarter 2024.

The unemployment rate has fallen much faster in this recession compared with the

recessions of the 1980s and 1990s. In the 1980s, the unemployment rate rose from around

5 per cent to over 10 per cent and took more than eight years to recover. In the 1990s

recession the unemployment rate rose from around 6 per cent to over 11 per cent and

did not return to pre-recession lows for around ten years. In stark contrast, following

this recession, the unemployment rate is forecast to return to pre-pandemic levels in

around two years.

The participation rate is expected to remain at around 66¼ per cent through to the

June quarters of 2021 and 2022, before declining marginally to 66 per cent by the

June quarter of 2023. The high participation rate over 2021-22 reflects expectations that

continued positive economic conditions will encourage workers to remain in the labour

force. A slight decline in the participation rate beyond this reflects the softening cyclical

strength in participation as the economy returns towards trend levels of output and

employment.

Overall, the outlook for wage growth is expected to remain moderate over the forecast

period. This reflects both the severe impacts of the pandemic and the continued spare

capacity in the labour market in the near term. The wage growth outlook also reflects a

modest downwards revision to Treasury’s estimate of the NAIRU.2

Growth in wages, as measured by the Wage Price Index (WPI), slowed to just

0.1 per cent in the September quarter of 2020, the lowest quarterly growth on record.

Growth in the WPI then recovered to 0.6 per cent in the December quarter of 2020 to be

1.4 per cent higher through the year, partly reflecting a rollback of pay reductions

implemented earlier in the year as employers responded to the impact of the pandemic.

Modest inflation outcomes however have meant that consumers have maintained

purchasing power with real wages growth in line with the 10-year average.

2 Ruberl H, Ball M, Lucas L and Williamson T (2021), ‘Estimating the NAIRU in Australia’,

Treasury Working Paper 2021-01, 29 April 2021.

| Budget Paper No.1


The WPI is forecast to grow by 1¼ per cent through the year to the June quarter of 2021

and by 1½ per cent through the year to the June quarter of 2022, before rising to

2¼ per cent through the year to the June quarter of 2023. The near-term outlook is

consistent with low wage increases in new federal enterprise bargaining agreements and

state public sector wage caps that are expected to moderate the outlook for wage growth

over the forecast period. Towards the end of the forecast period, the lower

unemployment rate and broader economic strength should see wages begin to pick up.

Growth in consumer prices, as measured by the Consumer Price Index (CPI),

experienced large fluctuations throughout 2020, largely resulting from the impacts of

the pandemic and the Government’s associated policy response. In June, the CPI fell by

1.9 per cent, the largest quarterly fall in the history of the series. This was driven by the

introduction of free childcare, waiving of preschool fees in some cities and a sharp fall

in the price of automotive fuel following the significant contraction in global oil prices.

The subsequent reinstatement of childcare fees, recovery in fuel prices and increases in

tobacco excise saw a strong rebound in the CPI over the second half of 2020, increasing

by 2.4 per cent in the six months to December. This strong growth did not continue into

2021, with CPI growing by 0.6 per cent in the March quarter.

Looking forward, CPI growth is expected to peak at around 3½ per cent through the

year to the June quarter of 2021 before moderating to 1¾ per cent through the year to

the June quarter of 2022. CPI growth is then expected to rise to 2¼ per cent through the

year to the June quarter of 2023. Growth in the near term reflects the rebound from the

record fall in CPI inflation in the June quarter of 2020, alongside the continued recovery

in global oil prices, with some strength being offset by the continued rollout of

HomeBuilder grants. However, this near-term strength is expected to be transitory, and

underlying inflation is expected to remain subdued, below the RBA’s target band of

2-3 per cent in the near term. From the second half of 2021 onwards, CPI growth is

expected to strengthen, reflecting a reduction in labour market slack and expected wage

growth. Headline inflation is expected to approach the RBA’s target band of 2-3 per cent

in 2022-23, as the unemployment rate reaches the estimated NAIRU.

Underlying measures of price growth have remained subdued in recent quarters with

trimmed mean inflation increasing by 0.3 per cent in the March quarter of 2021 to be

1.1 per cent higher through the year, the weakest annual growth in the history of the

series. As the unemployment gap is reduced and the unemployment rate approaches

the NAIRU, growth in underlying price measures are expected to strengthen. Further

falls in the unemployment rate below the NAIRU will likely see wage and price growth

become increasingly sensitive to employment growth. However, the extent to which

tightening labour market conditions will flow through into wage and price pressures

remains highly uncertain.

There are potential upside risks to the outlook for wages and prices, as stronger labour

market conditions could increase upward pressure on wages over the forecast period.

Budget Paper No.1 |


In addition, ongoing international border closures may cause labour shortages and place

upward pressure on wages in selected industries.

Outlook for nominal GDP growth

Nominal GDP is forecast to grow by 3¾ per cent in 2020-21, by a further 3½ per cent in

2021-22 and by 2 per cent in 2022-23. The increases in nominal GDP over 2021-22 and

2022-23 are expected to be lower than for real GDP, reflecting a notable decline in the

terms of trade. The terms of trade are expected to rise strongly in the near term, by

10 per cent in 2020-21, supported by significant strength in iron ore prices. In line with

the prudent approach to forecasting volatile commodity prices, elevated iron ore prices

are assumed to decline and the terms of trade are expected to fall by 8 per cent in 2021-22

and by a further 10½ per cent in 2022-23.

Commodity prices remain a key driver of the terms of trade and the inherent volatility

in commodity prices remains a key uncertainty in the outlook for nominal GDP. Iron ore

prices have remained elevated at around US$160 per tonne since mid-December 2020,

due to strong Chinese demand and unresolved supply disruptions in Brazil. Treasury’s

industry liaison suggests that in the near term, global iron ore supply is not expected to

recover rapidly and the sustained demand for steel production is expected to drive iron

ore demand. The iron ore price is assumed to decline to US$55 per tonne FOB by the end

of the March quarter 2022, three quarters later than was assumed in the 2020-21 Budget.

Metallurgical coal prices have also been volatile recently and are modestly higher than

recent COVID-period lows. Thermal coal prices have been supported by the continued

recovery in global economic activity, the cold winter in East Asia over early 2021 and

recent weather-related supply disruptions in Australia. While Chinese restrictions have

affected the price of some types of Australian coal, so far, most coal exports have been

able to be re-directed to alternative markets. Consultation with market and industry

participants, however, has highlighted that there is elevated uncertainty in the coal

market, in particular around the duration of the Chinese restrictions on Australian coal,

as well as around global environmental policies.

There are upside risks to the outlook for commodity prices as industry consultation

suggests that iron ore prices could remain elevated for an extended period of time.

Meanwhile, a stronger recovery in steel production outside of China could also provide

further support for iron ore and metallurgical coal prices.

| Budget Paper No.1


Box 2.5: Sensitivity analysis of the iron ore spot price

Movements in commodity prices can have significant effects on nominal GDP and Commonwealth Government tax revenue. The analysis below provides an indication of the direct impacts on nominal GDP and company tax receipts of altering the timing around the iron ore spot price assumption, holding everything else constant.

If the iron ore price was to fall immediately to US$55 per tonne FOB, rather than by the end of the March quarter of 2022 as assumed, nominal GDP could be around $11.6 billion lower than forecast in 2020-21 and $38.1 billion lower in 2021-22. This would result in a decrease in tax receipts of around $600 million in 2020-21, $8.3 billion in 2021-22 and, reflecting the timing of company tax collections, around $3.5 billion in 2022-23 (Table 2.3).

By contrast, if the iron ore price was to remain elevated until the end of the March quarter of 2022, before falling immediately to US$55 per tonne FOB, nominal GDP could be around $1.1 billion higher than forecast in 2020-21 and $48.7 billion higher in 2021-22. This would result in an increase in tax receipts of around $100 million in 2020-21, $5.5 billion in 2021-22 and, again reflecting the timing of company tax collections, around $6.9 billion in 2022-23.

Table 2.3: Sensitivity analysis of movements in the iron ore spot price $billion Earlier fall to US$55/tonne FOB(a) Later fall to US$55/tonne FOB

2020-21 2021-22 2022-23 2020-21 2021-22 2022-23

Nominal GDP -11.6 -38.1 0.0 1.1 48.7 0.0

Tax receipts -0.6 -8.3 -3.5 0.1 5.5 6.9

(a) FOB is the free-on-board price which excludes freight costs. Source: Treasury.

Further details on how movements in commodity prices can affect the economy are detailed in Statement 8: Forecasting Performance and Sensitivity Analysis.

Budget Paper No.1 |


Medium-term projections

The fiscal aggregates in this year’s Budget are underpinned by forecasts of economic

activity over the Budget forward estimates and projections over the medium term

(Chart 2.15).

Chart 2.15: Medium-term projection period

2020-2

1

2021-2

2

2022-2

3

2023-2

4

2024-2

5

2025-2

6

2026-2

7

2027-2

8

2028-2

9

2029-3

0

2030-3

1

2031-3

2

Economic forecasts

Budget medium-term projections

Economic medium-term projections

Budget estimates

Detailed forecasts

Source: Treasury.

In the current financial year, the Budget year and the subsequent financial year, more

emphasis is placed on detailed forecasts of the expenditure components of economic

activity. Beyond this period, estimates are constructed based on expectations for the

level of potential output and modelling of the path by which output converges back to

this potential level. An output gap exists if actual output is below potential.

A macroeconometric model of the Australian economy is used to help inform the path

that the economy takes to close the output gap, accounting for factors such as the nature

and level of spare capacity in the economy, the drivers of potential output growth, and

the expected path of international trade prices. The model allows for a considered

assessment of the path of output beyond the detailed forecast period, including

incorporating major policy into the economic forecasts over the budget forward

estimates period.

Potential GDP is estimated based on an analysis of trends for population, productivity,

and participation. As additional capacity in the economy is absorbed over time (that is,

the output gap closes), real GDP converges towards its potential level and the

unemployment rate converges towards the estimate of the NAIRU. On the nominal side,

key non-rural commodity export prices are projected based on cost curve analysis.

Domestic prices return over time to the mid-point of the RBA’s inflation target band.

Overall, the outlook for the level of nominal GDP over the forecast and medium-term

projection period has strengthened, reflecting a faster-than-expected recovery to date, a

higher level of potential GDP over the medium term and stronger actual and updated

commodity export prices assumptions. Potential GDP over the medium term is

projected to remain below its expected pre-pandemic level. The terms of trade are

projected to return to and remain around their 2006-07 level from 2025-26.

| Budget Paper No.1


The faster-than-anticipated recovery in output and the labour market means that spare

capacity continues to be reduced. Spare capacity in the labour market is expected to be

absorbed by the end of 2022-23. From this point onwards, real GDP is projected to be

primarily driven by potential GDP growth.

Potential GDP growth is estimated to fall below 2 per cent per annum in the near term

before rising to average around 2¾ per cent per annum over the medium term to

2031-32.

Treasury has recently updated its approach to estimating the NAIRU, resulting in a

lower NAIRU estimate that lies within the band of 4½ to 5 per cent. A lower NAIRU is

consistent with the international experience prior to the pandemic of low

unemployment with little to no inflation.

The trend participation rate has been revised up over the forward estimates and through

the medium term. This primarily reflects improved expectations for labour-force

participation for females, particularly full-time prime working age and older females.3

Labour productivity growth depends on both trends in underlying productivity4 and

the productive capital stock. Underlying productivity growth is assumed to converge

over a 10-year period to the average growth rate in labour productivity over the 30 years

to 2018-19 of 1.5 per cent per annum. Increases in underlying productivity lead to

complementary increases in the productive capital stock, but this takes time due to costs

of adjustment.

3 Gustafsson L (2021), ‘Australian labour force participation: historical trends and future

prospects’, Treasury Working Paper 2021-02, 29 April 2021. 4 Underlying productivity is also known as labour augmenting technical change.

Statement 3: Fiscal Strategy and Outlook | Page 67

Statement 3: Fiscal Strategy and Outlook

The Government’s decisive action in providing unprecedented economic support in response to the COVID-19 pandemic has been central to Australia’s economic recovery.

The Government’s support was temporary, targeted, proportionate and delivered using existing mechanisms. It cushioned Australian households and businesses from the worst of the crisis, and limited the economic cost and longer-term labour scarring.

The Government’s support was vital in driving the speed with which the economy has recovered, exceeding even the most optimistic of expectations. The strength in the domestic economic recovery has flowed through to higher tax receipts and lower unemployment payments and a stronger fiscal position.

While remarkable progress has been made in our domestic economic recovery, the virus presents an ongoing threat to the global and domestic economy. As a result, Australia remains in the first phase of the Government’s Economic and Fiscal Strategy. The first phase of the Strategy focuses on driving down the unemployment rate back to where it was prior to the pandemic or lower and ensuring the economic recovery is sustained and secured.

Consistent with the first phase of the Strategy, the Government is using a large share of the gains from automatic stabilisers to invest in a stronger economy. The Government’s economic plan is focussed on achieving strong and sustainable private sector-led growth, prioritising job creation as a pathway to a stronger economy and stronger fiscal position.

Decisions taken in this Budget will help get Australians through the COVID-19 pandemic, secure the economic recovery and set the nation up for the future. Securing our economic recovery also ensures we can guarantee the essential services that Australians rely on, support our community’s most vulnerable, and enhance Australia’s resilience and national security.

The underlying cash balance is now expected to be a deficit of $161.0 billion in 2020-21, a $52.7 billion improvement compared with $213.7 billion at the 2020-21 Budget, predominantly as a result of better than expected tax receipts. The underlying cash balance is expected to be a deficit of $106.6 billion in 2021-22 and continue to improve over the forward estimates to a deficit of $57.0 billion in 2024-25, nearly half of the deficit in 2021-22. The underlying cash balance is projected to further improve over the medium term to a deficit of 1.3 per cent of GDP in 2031-32.

A strong economy will enable the Government to stabilise debt as a share of the economy over time. Net debt is expected to peak at 40.9 per cent of GDP at 30 June 2025, a lower peak than forecast in the 2020-21 Budget, and fall to 37.0 per cent of GDP by the end of the medium term.


Contents

Overview ....................................................................................................... 71

Economic and Fiscal Strategy ..................................................................... 72

Fiscal outlook — forward estimates............................................................ 75 Underlying cash balance estimates .............................................................................. 76 Net operating balance estimates ................................................................................... 85 Headline cash balance estimates ................................................................................. 87 Recurrent and capital spending .................................................................................... 89

The Government’s balance sheet ................................................................ 90 Gross debt estimates .................................................................................................... 90 Net debt estimates ........................................................................................................ 92 Net financial worth and net worth .................................................................................. 93

Medium-term fiscal projections ................................................................... 94 Underlying cash balance projections ............................................................................ 95 Receipts and payments projections .............................................................................. 96 Gross debt projections .................................................................................................. 98 Net debt projections ...................................................................................................... 99 Net financial worth projections .................................................................................... 100 Structural budget balance estimates ........................................................................... 100


Statement 3: Fiscal Strategy and Outlook

Overview

The Government acted decisively in response to the COVID-19 pandemic in providing

an unprecedented level of fiscal support to protect vulnerable households and save

Australian businesses and jobs. The Government was well placed to provide this

response, as it entered the pandemic with a strong economy and from a position of fiscal

strength, made possible by years of responsible budget management.

The public health and economic responses were successful in mitigating the significant

impacts at the height of the pandemic and avoiding labour scarring, by protecting as

many jobs as possible. The Government’s economic support was underpinned by a clear

set of principles: that it be temporary, targeted, proportionate and delivered using

existing mechanisms where possible. These principles ensured that support was

delivered when needed and set the economy on a path to recovery from the pandemic.

Significant economic support announced as part of the emergency response in 2020 is

still flowing to households and businesses. This, together with further targeted support

in this Budget and the ongoing rollout of the vaccine, underpins a positive outlook for

the Australian economy.

The strength in the domestic economic recovery is reflected in a stronger fiscal position,

predominantly due to higher-than-expected tax receipts as well as lower-than-expected

unemployment benefits.

The stronger fiscal position has enabled the Government to continue to invest in the next

stage of its economic plan to grow the economy, reduce unemployment and secure the

recovery, while guaranteeing the essential services that Australians rely on. This is

consistent with the Government’s Economic and Fiscal Strategy which recognises that

sustainable private sector-led growth with low unemployment is key to stabilising and

ultimately reducing debt as a share of the economy in the medium term.

The underlying cash balance in 2020-21 is expected to be a deficit of $161.0 billion

(7.8 per cent of GDP), an improvement of $52.7 billion since the 2020-21 Budget. The

underlying cash balance is expected to improve to a deficit of $106.6 billion in 2021-22

(5.0 per cent of GDP) and continue to improve over the forward estimates to

$57.0 billion (2.4 per cent of GDP) in 2024-25. Over the medium term, the underlying

cash balance is projected to improve to a deficit of 1.3 per cent of GDP in 2031-32.

Net debt is expected to be 34.2 per cent of GDP at 30 June 2022 and peak at

40.9 per cent of GDP at 30 June 2025. This compares to a previous peak in net debt of

43.8 per cent of GDP estimated in the 2020-21 Budget. Net debt is projected to fall over

the medium term to 37.0 per cent of GDP at 30 June 2032.


Page 72 | Statement 3: Fiscal Strategy and Outlook

Gross debt is projected to be lower as a share of GDP in each year of the forward

estimates and medium term compared with the 2020-21 Budget. Gross debt is expected

to be 45.1 per cent of GDP at 30 June 2022, increasing to 50 per cent of GDP at

30 June 2025. Gross debt is projected to stabilise over the medium term at around

51 per cent of GDP. This compares to the 2020-21 Budget where gross debt was projected

to stabilise at around 55 per cent of GDP in the medium term.

Table 3.1: Australian Government general government sector budget aggregates Actual Estimates

2019-20 2020-21 2021-22 2022-23 2023-24 2024-25

$b $b $b $b $b $b

Underlying cash balance(a) -85.3 -161.0 -106.6 -99.3 -79.5 -57.0

Per cent of GDP -4.3 -7.8 -5.0 -4.6 -3.5 -2.4

Net operating balance -92.3 -154.5 -92.7 -90.2 -70.2 -55.7

Per cent of GDP -4.7 -7.5 -4.3 -4.1 -3.1 -2.3

Net debt(b) 491.2 617.5 729.0 835.0 920.4 980.6

Per cent of GDP 24.7 30.0 34.2 38.4 40.4 40.9

Gross debt(c) 684.3 829.0 963.0 1,058.0 1,134.0 1,199.0

Per cent of GDP 34.5 40.2 45.1 48.6 49.7 50.0

(a) Excludes net Future Fund earnings before 2020-21. (b) Net debt is the sum of interest-bearing liabilities (which include Australian Government Securities (AGS)

on issue measured at market value) minus the sum of selected financial assets (cash and deposits, advances paid and investments, loans and placements).

(c) Gross debt measures the face value of AGS on issue.

Economic and Fiscal Strategy

The Government revised its Economic and Fiscal Strategy in the 2020-21 Budget. Core

to the Strategy is a focus on supporting strong and sustainable private sector-led growth

and job creation, recognising this is the pathway to a strong and sustainable fiscal

position.

The Strategy operates in two phases. The first phase of the Strategy seeks to promote

employment, growth, business and consumer confidence through discretionary fiscal

policy and the operation of automatic stabilisers. The priority of this phase is to ensure

a strong and sustained recovery to drive down the unemployment rate.

Consistent with the Strategy, since the onset of the COVID-19 pandemic, the

Government has provided unprecedented support to households and businesses. This

was underpinned by a clear set of principles: that it be temporary, targeted and

proportionate to the shock and delivered using existing mechanisms where possible.

The support was intended to limit the economic cost and longer-term labour scarring

from the crisis by protecting as many jobs as possible.

As a result of the substantial economic support provided to the economy, the success in

managing the health crisis, and the resilience and flexibility shown by Australian



businesses and households, the Australian economy has recovered strongly from its first

recession in almost 30 years.

The transition to sustainable private sector-led growth, away from emergency

government support programs such as the JobKeeper Payment, will lay the foundations

for a stronger economy and a sustainable fiscal position over the medium term. In this

Budget, the Government is maintaining a focus on growth-friendly economic policies to

prioritise job creation as a pathway for a stronger economy and stronger fiscal position.

The Government is also providing targeted and temporary support for regions and

sectors that continue to be disproportionately affected by COVID-19, recognising that

the economic recovery is not necessarily progressing evenly.

While the economic forecasts suggest that an unemployment rate of 4¾ per cent will be

achieved by the June quarter 2023, a high degree of uncertainty remains. The virus

continues to present an ongoing threat to the health and economic recovery, both

domestically and globally, and the longer-term effects of the pandemic on people and

the economy are unclear. For this reason, Australia will continue to remain in the first

phase of the Economic and Fiscal Strategy until the recovery is secured.

Before a transition to the second phase of the Strategy, the Government’s ambition is for

sustainable private sector-led growth to drive unemployment down to pre pandemic

levels or lower. With further support from monetary policy limited, fiscal policy will

need to continue to play an active role in driving the unemployment rate lower.

Only once the economic recovery is secured will the Government transition towards the

medium-term objective of stabilising and then reducing debt as a share of GDP. Stronger

economic growth, coupled with low costs of servicing debt, will enable the Government

to maintain a steady and declining ratio of debt to GDP over time while running a

modest deficit.

When the Government’s focus transitions to rebuilding fiscal buffers, it will act

consistently with its core values by:

• controlling expenditure growth, while maintaining the efficiency and quality of

government spending and guaranteeing the delivery of essential services

• supporting revenue growth through policies that drive economic growth, while

maintaining a tax-to-GDP ratio at or below 23.9 per cent

• using the Government’s balance sheet to support productivity-enhancing

investments

• pursuing ongoing structural reforms to boost economic growth.

The Government’s Economic and Fiscal Strategy is consistent with the requirements of

the Charter of Budget Honesty Act 1998 and is set out in Box 3.1.



Box 3.1: The Government’s Economic and Fiscal Strategy

The Government’s Economic and Fiscal Strategy will drive sustainable, private sector-led growth and job creation and ensure Australia is well-placed to respond to future shocks.

By supporting economic growth now and over the medium term, the Strategy will underpin stronger public finances over time, guaranteed provision of essential services and lower taxes as a share of the economy.

COVID-19 Economic Recovery Plan

The Government’s Economic Recovery Plan aims to promote employment, growth and business and consumer confidence through:

• allowing the budget’s automatic stabilisers to operate, to support aggregate demand

• temporary, proportionate and targeted fiscal support, including through tax measures that incentivise private sector investment to drive productivity and create jobs

• structural reforms to improve the ease of doing business and increase the economy’s long-term growth potential to create the jobs of the future

• continuing to improve the efficiency and quality of government spending.

Progress on the economic recovery will be reviewed at each Budget update. This phase of the Strategy will remain in place until the economic recovery is secure and the unemployment rate is back to pre-crisis levels or lower, at which time the Strategy will be governed by the Government’s medium-term fiscal objectives.

Medium term fiscal strategy

Over the medium term, the fiscal strategy will be focused on growing the economy in order to stabilise and reduce debt. This underlines the commitment to budget and balance sheet discipline and provides flexibility to respond to changing economic conditions.

The strategy is underpinned by the following elements:

• stabilising and then reducing gross and net debt as a share of the economy

• targeting a budget balance, on average, over the course of the economic cycle that is consistent with the debt objective. This will be achieved by:

‒ controlling expenditure growth, while maintaining the efficiency and quality of government spending and guaranteeing the delivery of essential services

‒ supporting revenue growth through policies that drive earnings and economic growth, while maintaining a sustainable tax burden consistent with a tax-to-GDP ratio at or below 23.9 per cent of GDP

‒ using the Government’s balance sheet to support productivity-enhancing investments that build a stronger economy, support private investment and create jobs

‒ ongoing structural reforms to boost economic growth.



Fiscal outlook — forward estimates

An underlying cash deficit of $106.6 billion (5.0 per cent of GDP) is forecast in 2021-22,

improving to an estimated deficit of $57.0 billion (2.4 per cent of GDP) in 2024-25

(Table 3.2).

Table 3.2: Australian Government general government sector budget aggregates Actual Estimates

2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 Total(a)

$b $b $b $b $b $b $b

Receipts 469.4 499.8 482.1 494.0 532.9 572.0 2,080.9

Per cent of GDP 23.6 24.3 22.6 22.7 23.4 23.9

Payments(b) 549.6 660.8 588.7 593.3 612.4 628.9 2,423.2

Per cent of GDP 27.7 32.1 27.6 27.3 26.9 26.2

Net Future Fund earnings(c) 5.0 na na na na na na

Underlying cash balance(d) -85.3 -161.0 -106.6 -99.3 -79.5 -57.0 -342.4

Per cent of GDP -4.3 -7.8 -5.0 -4.6 -3.5 -2.4

Revenue 486.3 504.9 496.6 505.1 544.5 578.0 2,124.2

Per cent of GDP 24.5 24.5 23.3 23.2 23.9 24.1

Expenses 578.5 659.4 589.3 595.4 614.7 633.7 2,433.1

Per cent of GDP 29.2 32.0 27.6 27.4 27.0 26.4

Net operating balance -92.3 -154.5 -92.7 -90.2 -70.2 -55.7 -308.9

Per cent of GDP -4.7 -7.5 -4.3 -4.1 -3.1 -2.3

Net capital investment 4.0 8.6 10.3 10.9 10.1 9.2 40.6

Fiscal balance -96.3 -163.2 -103.0 -101.2 -80.3 -64.9 -349.4

Per cent of GDP -4.9 -7.9 -4.8 -4.6 -3.5 -2.7

Memorandum:

Net Future Fund earnings(c) 5.0 5.5 3.0 3.2 3.4 3.6 13.2

Headline cash balance -93.9 -168.2 -117.0 -109.4 -75.4 -65.1 -367.0

(a) Total is equal to the sum of amounts from 2021-22 to 2024-25. (b) Equivalent to cash payments for operating activities, purchases of non-financial assets and net cash flows

from financing activities for leases. (c) Under the Future Fund Act 2006, net Future Fund earnings will be available to meet the Australian

Government’s superannuation liability from 2020-21. From this time, the underlying cash balance includes expected net Future Fund earnings.

(d) Excludes net Future Fund earnings before 2020-21.

Receipts are expected to fall to $482.1 billion (22.6 per cent of GDP) in 2021-22, then

increase across each year of the forward estimates to $572.0 billion (23.9 per cent of GDP)

in 2024-25.

Payments are expected to fall to $588.7 billion (27.6 per cent of GDP) in 2021-22, and then

increase across the forward estimates to $628.9 billion (26.2 per cent of GDP) in 2024-25.

A headline cash deficit of $117.0 billion is expected in 2021-22, improving to an estimated

deficit of $65.1 billion in 2024-25.



In accrual terms, a net operating deficit of $92.7 billion (4.3 per cent of GDP) is expected

in 2021-22, improving to an estimated deficit of $55.7 billion (2.3 per cent of GDP) in

2024-25.

Underlying cash balance estimates

Table 3.3 provides a summary of the cash flows of the Australian Government general

government sector.

Table 3.3: Summary of Australian Government general government sector cash flow Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$b $b $b $b $b

Cash receipts

Operating cash receipts 499.6 481.8 493.8 532.6 571.8

Capital cash receipts(a) 0.2 0.3 0.2 0.2 0.2

Total cash receipts 499.8 482.1 494.0 532.9 572.0

Cash payments

Operating cash payments 642.3 567.5 570.9 588.9 605.4

Capital cash payments(b) 16.1 18.8 19.9 21.0 21.1

Total cash payments 658.4 586.3 590.8 609.9 626.5

GFS cash surplus(+)/deficit(-) -158.5 -104.2 -96.8 -77.0 -54.5

Per cent of GDP -7.7 -4.9 -4.4 -3.4 -2.3

plus Net cash flows from

financing activities for leases(c) -2.4 -2.4 -2.4 -2.5 -2.5

Underlying cash balance -161.0 -106.6 -99.3 -79.5 -57.0

Per cent of GDP -7.8 -5.0 -4.6 -3.5 -2.4

Memorandum:

Net cash flows from investments in financial

assets for policy purposes -7.3 -10.4 -10.1 4.1 -8.2

Headline cash balance -168.2 -117.0 -109.4 -75.4 -65.1

(a) Equivalent to cash receipts from the sale of non-financial assets in the cash flow statement. (b) Equivalent to cash payments for purchases of non-financial assets in the cash flow statement. (c) Principal payments on lease liabilities, which are financing cash payments, are deducted in the calculation

of the underlying cash balance to maintain consistency of measure following the implementation of AASB 16.

Table 3.4 provides a reconciliation of changes in the underlying cash balance between

the 2020-21 Budget and 2021-22 Budget.

Table 3.5 provides a reconciliation of the changes in the underlying cash balance between the 2020-21 Budget, the 2020-21 MYEFO and 2021-22 Budget, disaggregated by policy decisions and parameter and other variations on receipts and payments estimates.



Table 3.4: Changes to the underlying cash balance between the 2020-21 Budget and 2021-22 Budget

Estimates

2020-21 2021-22 2022-23 2023-24 Total

$m $m $m $m $m

Effect of policy decisions(a)

Receipts -67 -416 -8,006 -14,999 -23,487

Payments 8,150 21,030 18,914 16,145 64,239

Total policy decisions impact on

underlying cash balance -8,217 -21,445 -26,920 -31,144 -87,727

Effect of parameter and other

variations(a)

Receipts 36,134 30,551 19,359 21,490 107,535

Payments -24,785 3,722 3,822 2,934 -14,307

Total parameter and other variations

impact on underlying cash balance 60,919 26,829 15,537 18,556 121,841

Total change in underlying

cash balance 52,702 5,383 -11,383 -12,587 34,115

(a) A positive number for receipts improves the underlying cash balance, while a positive number for payments worsens the underlying cash balance.

In aggregate, parameter variations over the four years to 2023-24 are expected to improve the underlying cash balance by $121.8 billion since the 2020-21 Budget (Table 3.4). Since the 2020-21 MYEFO, parameter variations over the five years to 2024-25 are expected to improve the underlying cash balance by $104.3 billion (Table 3.5). The operation of automatic stabilisers has resulted in higher-than-expected tax receipts and lower-than-expected unemployment benefits due to the strength in the economy. This is expected to drive a positive cumulative fiscal improvement since the COVID-19 pandemic by the end of the forward estimates (Chart 3.1).



Chart 3.1: Cumulative fiscal improvement from 2013-14 to 2024-25

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-5

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0

1

2

3

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0

1

2

3

2013-14 2015-16 2017-18 2019-20 2021-22 2023-24

% of GDP% of GDP

Underlying cash balance

Cumulative fiscalimprovement

Estimates

Note: Excludes net Future Fund earnings before 2020-21. Source: Treasury projections

The improvements from securing the economic recovery have enabled the Government

to invest in the next stage of its economic plan to grow the economy and guarantee the

essential services that Australians rely on.

Since the 2020-21 Budget, policy decisions over the four years to 2023-24 are expected to

reduce the underlying cash balance by $87.7 billion (Table 3.4). Since the

2020-21 MYEFO, policy decisions over the five years to 2024-25 are expected to reduce

the underlying cash balance by $95.9 billion (Table 3.5). This reflects spending to secure

the economic recovery and lower the unemployment rate consistent with the Economic

and Fiscal Strategy while also guaranteeing high quality sustainable services, in areas

such as aged care and mental health.



Table 3.5: Reconciliation of underlying cash balance estimates

Estimates

2020-21 2021-22 2022-23 2023-24 2024-25 Total

$m $m $m $m $m $m

2020-21 Budget underlying

cash balance(a) -213,654 -112,003 -87,883 -66,926 -57,456 -537,922

Per cent of GDP -11.0 -5.6 -4.2 -3.0 -2.5

Changes from 2020-21 Budget to

2020-21 MYEFO

Effect of policy decisions(b) -4,884 -3,236 -2,162 -1,813 * *

Effect of parameter and other variations 20,791 6,778 5,659 2,765 * *

Total variations(c) 15,907 3,542 3,497 952 2,298 26,197

2020-21 MYEFO underlying cash

balance(d) -197,747 -108,461 -84,386 -65,974 -55,158 -511,725

Per cent of GDP -9.9 -5.3 -4.0 -3.0 -2.4

Changes from 2020-21 MYEFO to

2021-22 Budget

Effect of policy decisions(b)(e)

Receipts 38 14 -7,357 -14,392 -5,890 -27,587

Payments 3,372 18,224 17,401 14,939 14,351 68,287


underlying cash balance -3,334 -18,210 -24,758 -29,331 -20,241 -95,874

Effect of parameter and other variations(e)

Receipts 26,660 23,541 14,300 20,972 24,615 110,089

Payments -13,468 3,490 4,422 5,181 6,182 5,808


impact on underlying cash balance 40,129 20,051 9,878 15,791 18,433 104,281

2021-22 Budget underlying cash

balance -160,952 -106,619 -99,266 -79,514 -56,966 -503,318

Per cent of GDP -7.8 -5.0 -4.6 -3.5 -2.4

*Data is not available. (a) 2024-25 underlying cash balance as published in the medium-term projections, pages 3-28 of Budget

Paper No. 1: Budget Strategy and Outlook 2020-21. (b) Excludes secondary impacts on public debt interest of policy decisions, offsets from the Contingency

Reserve for decisions taken. (c) 2024-25 shows the total variation between medium term projections of the underlying cash balance

published in the 2020-21 Budget and 2020-21 MYEFO. (d) 2024-25 underlying cash balance as published in the medium-term projections, page 55 of the

2020-21 MYEFO. (e) A positive number for receipts improves the underlying cash balance, while a positive number for payments

worsens the underlying cash balance.

Receipts estimates

Total receipts are expected to be $30.1 billion higher in 2021-22 than estimated at the

2020-21 Budget, with tax receipts $31.8 billion higher and non-tax receipts $1.7 billion

lower.



Policy decisions

Policy decisions since the 2020-21 Budget are expected to reduce total receipts by

$67 million in 2020-21, $416 million in 2021-22 and $23.5 billion over the four years to

2023-24. Since the 2020-21 MYEFO, policy decisions are expected to reduce total receipts

by $27.6 billion over the five years to 2024-25.

Policy decisions since the 2020-21 Budget are expected to reduce tax receipts by

$4 million in 2020-21 and $22.6 billion over the four years to 2023-24.

Significant measures since the 2020-21 MYEFO include:

• Extending temporary full expensing for 12 months until 30 June 2023. This will allow

eligible businesses with aggregated annual turnover or total income of less than

$5 billion to deduct the full cost of eligible depreciable assets of any value, acquired

from 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by

30 June 2023. This measure is estimated to decrease receipts by $17.9 billion over the

four years to 2024-25

• Extending temporary loss carry-back to allow eligible companies to carry back tax

losses from the 2022-23 income year. Companies with aggregated annual turnover of

less than $5 billion will be able to carry back tax losses incurred during the 2019-20,

2020-21, 2021-22 and now the 2022-23 income years to offset tax paid in 2018-19 or

later years. This measure is estimated to decrease receipts by $2.8 billion over the four

years to 2024-25

• Retaining the low and middle income tax offset (LMITO) for the 2021-22 income year.

This measure is estimated to decrease receipts by $7.8 billion over the four years to

2024-25.

Further details of Government policy decisions are provided in Budget Paper No. 2,

Budget Measures 2021-22.

Parameter and other variations

Parameter and other variations since the 2020-21 Budget are expected to increase total

receipts by $36.1 billion in 2020-21, $30.6 billion in 2021-22 and $107.5 billion over the

four years to 2023-24.

Since the 2020-21 Budget, parameter and other variations are expected to increase tax

receipts by $34.8 billion in 2020-21 and $107.1 billion over the four years to 2023-24.



The upward tax receipts revisions are driven by a number of factors. Elevated iron ore

prices have supported company tax receipts. The rapid rebound in the labour market is

supporting higher personal income tax receipts. Upward revisions to GST receipts

reflect underlying strength in activity statements in the current year and upgrades to the

outlook for consumption. Over the latter half of the forward estimates period,

improvement in the outlook for the labour market is expected to drive higher prices and

wages growth supporting tax receipts.

Further information on expected tax receipts is provided in Statement 5: Revenue.

Analysis of the sensitivity of the receipts estimates to changes in the economic outlook

is provided in Statement 8: Forecasting Performance and Scenario Analysis.

Payments estimates

Since the 2020-21 Budget, total nominal payments estimates have decreased by

$16.6 billion in 2020-21 due to improving economic conditions following the COVID-19

pandemic, but increased by $49.9 billion over the four years to 2023-24. Since the

2020-21 MYEFO, total nominal payments are estimated to increase by $74.1 billion over

the five years to 2024-25. This reflects the Government’s continued support in response

to the COVID-19 pandemic and further funding for important government services and

payments to improve the lives of Australians.

Policy decisions

Between the 2020-21 Budget and the 2021-22 Budget, policy decisions increased cash

payments by $8.2 billion in 2020-21 and increased total cash payments by $64.2 billion

over the four years to 2023-24. Since the 2020-21 MYEFO, policy decisions have increased

total cash payments by $3.4 billion in 2020-21 and by $53.9 billion over the four years to

2023-24.

Major increases in payments as a result of policy decisions since the 2020-21 MYEFO

include:

• increased funding in response to the recommendations of the Royal Commission into

Aged Care Quality and Safety (the Royal Commission) to improve safety and quality

and the availability of aged care services, which is expected to increase payments by

$17.7 billion over five years from 2020-21

• an increase to working age payments, including the JobSeeker Payment, while

strengthening mutual obligation requirements and maximising job seekers’ ability to

find and retain employment, which is expected to increase payments by $9.5 billion

over the five years from 2020-21



• expanding the Boosting Apprenticeships Commencements wage subsidy to further

support business and Group Training Organisations to take on new apprentices and

trainees, which is expected to increase payments by $2.7 billion over four years from

2020-21

• continuing support for the aviation, tourism, arts and international education sectors,

as part of the Government’s response to the COVID-19 pandemic, supporting the

transition to recovery and stimulating tourism, which is expected to increase

payments by $2.1 billion over four years from 2020-21

• improving access to mental health prevention and support services, as well as suicide

prevention initiatives, including initiatives to be progressed with states and

territories for a new national agreement on mental health and suicide prevention,

which is expected to increase payments by $2.0 billion over four years from 2021-22

• further funding to purchase COVID-19 vaccines and for the distribution and

administration of these to residents of Australia, which is expected to increase

payments by $1.9 billion over five years from 2020-21

• improving women’s choices and economic security, including assistance to families

with children in child care by reducing out-of-pocket costs, which is expected to

increase payments by $1.8 billion over five years from 2020-21. The measure will

remove the Child Care Subsidy (CCS) annual cap and increase the CCS rate for the

second child and subsequent children aged five years and under

• an ongoing Commonwealth funding contribution to preschool, which is expected to

increase payments by $1.6 billion over four years from 2021-22. The first four years

of funding, covering the 2022 to 2025 preschool years, will be delivered through a

new four year funding agreement to be negotiated with the states and territories

• initiatives to reduce and support the victims of Family, Domestic and Sexual Violence

against women and children, which is expected to increase payments by $998.1

million over four years from 2021-22. This measure forms the Government’s

transitional strategy ahead of the development of the new National Plan to replace

the National Plan to Reduce Violence against Women and their Children (2010-2022).


Between the 2020-21 Budget and the 2021-22 Budget, parameter and other variations

decreased total cash payments by $24.8 billion in 2020-21 and decreased total cash

payments by $14.3 billion over the four years to 2023-24. Since the 2020-21 MYEFO,

parameter and other variations have decreased cash payments by $13.5 billion in 2020-21

and decreased total cash payments by $374.5 million over the four years to 2023-24.



Major increases in cash payments as a result of parameter and other variations since the

2020-21 MYEFO include:

• payments relating to the provision of GST to the States and Territories, which are

expected to increase by $6.6 billion in 2020-21 ($21.1 billion over the four years to

2023-24), consistent with an increase in GST receipts

• payments relating to the National Disability Insurance Scheme, which are expected

to increase by $1.2 billion in 2020-21 ($13.2 billion over the four years to 2023-24),

largely reflecting increased participant numbers and higher than expected average

participant costs

• payments related to the Military Rehabilitation Compensation Acts — Income

Support and Compensation program, which are expected to increase by $3.3 million

in 2020-21 ($2.5 billion over the four years to 2023-24), largely reflecting an increase

in the number of claims made by members of the Australian Defence Force and

veterans

• payments under the General Revenue Assistance program, which are expected to

increase by $76.6 million in 2020-21 ($2.3 billion over the four years to 2023-24),

largely reflecting changes to transitional GST top-up payments, Horizontal Fiscal

Equalisation transition payments and increased royalty payments resulting from

higher sale price and volume for liquefied natural gas and condensate

• payments relating to the Financial Support for People with Disability program,

which are expected to decrease by $54.0 million in 2020-21 (increasing by $1.6 billion

over the four years to 2023-24), largely reflecting changes to estimated recipient

numbers

• payments related to the National Partnership for Housing, which are expected to

increase by $227.4 million in 2020-21 ($959.4 million over the three years to 2022-23),

largely reflecting a higher than expected number of applications for the HomeBuilder

program

• payments relating to the Pharmaceutical Benefits Scheme, which are expected to

increase by $95.4 million in 2020-21 ($852.5 million over the four years to 2023-24),

largely reflecting higher than expected price and volume forecasts for subsidised

medicines.

Major decreases in cash payments as a result of parameter and other variations since the

2020-21 MYEFO include:

• payments relating to the Job Seeker Income Support program, which are expected to

decrease by $4.9 billion in 2020-21 ($5.4 billion over the four years to 2023-24), largely

reflecting lower than expected recipients and average payment rates



• payments relating to the Economic Response to the Coronavirus program, which are

expected to decrease by $1.5 billion in 2020-21 ($4.9 billion over the three years to

2022-23), largely reflecting lower than expected uptake of the JobMaker Hiring Credit

and improving labour market conditions

• payments relating to the Infrastructure Investment Program, which are expected to

decrease by $188.7 million in 2020-21 ($3.3 billion over the four years to 2023-24),

largely reflecting a re-profile of program funding to align with the delivery of project

milestones. As part of the 2021-22 Budget measures titled Infrastructure Investment

and Road Safety Program — extension, the Government will provide additional

payments for priority road and rail projects to support short term economic stimulus

• payments relating to the Aged Care Services program, which are broadly in line in

2020-21 (decreasing by $2.3 billion over the four years to 2023-24), largely reflecting

lower than expected occupancy for residential aged care in line with consumer

demand. Between 2020-21 and 2023-24, the Government is providing $12.2 billion as

part of the response to the recommendations of the Royal Commission into Aged

Care Quality and Safety, including $9.6 billion in payments for the Aged Care

Services program

• payments relating to the Support for Seniors program, which are expected to

decrease by $531.3 million in 2020-21 ($1.3 billion over the four years to 2023-24),

largely reflecting lower than expected average payment rates caused by increases to

recipients’ average income and assets levels as the economy improves

• payments relating to the Workplace Support Program, which are expected to

decrease by $314.0 million in 2020-21 ($744.6 million over the four years to 2023-24),

largely reflecting the effect of improving economic conditions on payments made

under the Fair Entitlement Guarantee scheme.

Consistent with previous budgets, the underlying cash balance has been improved by

the regular draw down of the conservative bias allowance. Details of this draw down

are provided in Statement 6: Expenses and Net Capital Investment.

A significant proportion of Government spending is adjusted at each update to align

with changes in economic parameters (including prices and wages, unemployment and

foreign exchange rates). As a result, improving economic conditions have caused an

increase in spending in some programs and has also led to a reduction in the number of

beneficiaries for income support payments, which decreases payments.

Analysis of the sensitivity of the payments estimates to change in the economic outlook

is provided in Statement 8: Forecasting Performance and Scenario Analysis.



Net operating balance estimates

The net operating balance is an accrual measure, reflecting revenue minus expenses. It

excludes the impact of the Commonwealth’s net new capital expenditure and helps to

distinguish between the Government’s capital and recurrent spending.

The net operating balance is expected to be a deficit of $92.7 billion (4.3 per cent of GDP)

in 2021-22, compared to an expected deficit of $103.4 billion (5.1 per cent of GDP) in the

2020-21 Budget. Table 3.6 provides a reconciliation of the variations in the net operating

balance since the 2020-21 Budget.



Table 3.6: Reconciliation of net operating balance estimates

Estimates

2020-21 2021-22 2022-23 2023-24 2024-25 Total(a)

$m $m $m $m $m $m

2020-21 Budget net operating

balance -197,888 -103,420 -83,507 -58,519 * *

Per cent of GDP -10.2 -5.1 -4.0 -2.7


2020-21 MYEFO

Effect of policy decisions(b) -5,474 -3,150 -2,029 -1,662 * *


variations 18,178 8,406 4,585 3,042 * *

Total variations 12,704 5,255 2,556 1,380 * *

2020-21 MYEFO net operating

balance -185,185 -98,164 -80,950 -57,139 * *

Per cent of GDP -9.2 -4.8 -3.8 -2.6


2021-22 Budget

Effect of policy decisions(b)(c)

Revenue 38 353 -7,352 -14,406 -6,240 -27,645

Expenses 3,748 18,354 17,470 14,858 13,940 64,622


net operating balance -3,710 -18,001 -24,822 -29,264 -20,180 -92,266


variations(c)

Revenue 22,714 23,717 17,631 20,366 * *

Expenses -11,632 265 2,092 4,142 * *


impact on net operating balance 34,345 23,452 15,539 16,224 * *

2021-22 Budget net operating

balance -154,549 -92,713 -90,233 -70,178 -55,736 -308,860

Per cent of GDP -7.5 -4.3 -4.1 -3.1 -2.3

Net capital investment

Effect of net capital investment(d) 8,620 10,330 10,939 10,135 9,161 40,565

2021-22 Budget fiscal balance -163,169 -103,043 -101,171 -80,313 -64,897 -349,424

Per cent of GDP -7.9 -4.8 -4.6 -3.5 -2.7

*Data is not available. (a) Total is equal to the sum of amounts from 2021-22. (b) Excludes secondary impacts on public debt interest of policy decisions and offsets from the Contingency

Reserve for decisions taken. (c) A positive number for revenue improves the net operating balance, while a positive number for expenses

worsens the net operating balance. (d) A positive number for net capital investment worsens the fiscal balance.



Changes in accrual revenue are generally driven by the same factors as cash receipts,

though differences arise where revenue raised in a given year is not received in that

year.

Movements in expenses over the forward estimates are broadly similar to the

movements in cash payments. The key exceptions include:

• superannuation benefits, where there is a timing difference with the expense

accruing during employment and cash payments occurring during retirement

• purchases of non-financial assets, which are included in cash payments but not in

accrual expenses. The expense estimates include depreciation of non-financial assets

rather than recognising the impact at the time of purchase.

Detailed information on expenses can be found in Statement 6: Expenses and Net Capital

Investment.

Headline cash balance estimates

The headline cash balance consists of the underlying cash balance and net cash flows

from investments in financial assets for policy purposes (for example, student loans and

equity investment in the NBN). Table 3.7 provides further detail of differences between

the underlying and headline cash balance estimates of the Australian Government

general government sector.

The headline cash balance for 2021-22 is estimated to be a deficit of $117.0 billion,

compared with a deficit of $123.8 billion estimated at the 2020-21 Budget. This is

primarily driven by the improvement in the underlying cash balance.



Table 3.7: Reconciliation of general government underlying and headline cash balance estimates Estimates

2020-21 2021-22 2022-23 2023-24 2024-25 Total(a)

$m $m $m $m $m $m

2021-22 Budget underlying cash

balance -160,952 -106,619 -99,266 -79,514 -56,966 -342,366

plus Net cash flows from

investments in financial

assets for policy purposes

Student loans -3,524 -3,260 -3,271 -3,100 -2,758 -12,389

NBN loan(b) 5,550 0 0 13,908 0 13,908

Trade support loans -75 -70 -55 -50 -46 -221

CEFC loans and investments -517 -378 -493 -351 -329 -1,551

Northern Australia

Infrastructure Facility -229 -881 -1,324 -1,077 -674 -3,956

Australian Business

Securitisation Fund -235 -500 -250 -500 -501 -1,751

Structured Finance

Support Fund -1,186 -1,002 -6 -7 -7 -1,022

Drought and rural assistance

loans -2,714 -396 -207 35 42 -525

Official Development Assistance

- Multilateral Replenishment -78 -127 -128 -132 -139 -526

National Housing Finance and

Investment Corporation -91 -10 -15 -7 -42 -74

COVID-19 Support for

Indonesia — loan -1,450 100 100 100 100 400

Financial Assistance to

Papua New Guinea — loan -539 37 37 37 37 148

Net other(c) -2,199 -3,941 -4,528 -4,759 -3,864 -17,092

Total net cash flows from

investments in financial

assets for policy purposes -7,286 -10,428 -10,140 4,096 -8,182 -24,654

2021-22 Budget headline cash

balance -168,238 -117,047 -109,407 -75,417 -65,148 -367,019

(a) Total is equal to the sum of amounts from 2021-22 to 2024-25. (b) This financial profile represents the actual repayments for 2020-21. As the loan agreement between the

Government and NBN Co allows some flexibility in relation to the timing of the repayment, the remaining amount is included in 2023-24.

(c) Net other includes amounts that have been itemised for commercial-in-confidence reasons.



Recurrent and capital spending

Table 3.8 outlines estimates of the Government’s recurrent and capital spending from

2020-21 to 2024-25.

Table 3.8: The Government’s recurrent and capital spending(a) Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$b $b $b $b $b

Recurrent spending

Operating payments 466.5 378.1 375.1 390.6 405.8

Recurrent grants 96.4 99.8 100.3 101.9 103.0

Total recurrent spending 563.0 477.9 475.4 492.5 508.8

Per cent of total spending 91.3 89.4 88.5 88.9 89.9

Capital spending

Direct capital investment(b) 18.5 21.2 22.3 23.5 23.5

Capital grants 14.8 17.1 19.7 17.1 13.3

Financial asset investments 20.6 18.3 19.8 20.8 20.4

Total capital spending 53.8 56.5 61.8 61.4 57.3

Per cent of total spending 8.7 10.6 11.5 11.1 10.1

Total spending 616.8 534.4 537.2 553.9 566.0

(a) General Revenue Assistance is excluded from this analysis. (b) Non-financial asset purchases and net cash flows from financing activities for leases. Note: Recurrent spending includes pension and income support payments, payments to government

employees, payments for goods and services, subsidies, grants not made for capital purposes and specific purpose payments to states for recurrent purposes.

Impact of capital and recurrent spending on the borrowing requirement

Chart 3.2 sets out estimates of the Government’s annual borrowing for capital spending

and recurrent cash spending. It does this by analysing the net cash flows from recurrent

activities (i.e. current revenue less recurrent spending) and the cash flows for capital

investment.

Prior to the COVID-19 pandemic, net cash flows from recurrent activities at the

2019-20 MYEFO were expected to be in surplus across the forward estimates and fully

fund recurrent activities with borrowing required for capital spending only. With the

underlying cash balance in deficit across the forward estimates as a result of the

COVID-19 pandemic, the Government now expects to borrow for both recurrent and

capital spending.



Chart 3.2: Contributions of recurrent and capital spending to the Government’s borrowing requirement

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0

50

-200

-150

-100

-50

0

50

2009-10 2012-13 2015-16 2018-19 2021-22 2024-25

$b$b

Estimates

Capital spending

Recurrent activities

Note: Net capital spending includes spending for non-financial and financial assets, and capital grants to the

states and other entities. From 2019-20 onwards, capital spending includes impacts from the implementation of AASB 16 Leases.

The Government’s balance sheet

The balance sheet represents the assets and liabilities of the Australian Government.

Whereas ‘flow’ measures such as the underlying cash balance or net operating balance

focus on the government’s financial position from year to year, balance sheet measures

provide a greater focus on the medium and longer-term sustainability of government

operations.

A strong, healthy balance sheet enables governments to respond flexibly to unexpected

events and changing economic conditions. The strength of Australia’s fiscal position,

including historically low levels of debt, enabled the Government to take decisive action

in response to the COVID-19 pandemic.

There are several key aggregates that measure the health of the Government’s balance

sheet — gross debt, net debt, net financial worth and net worth.

Gross debt estimates

Gross debt measures the face value of Australian Government Securities (AGS) on issue.

This is the amount that the Government pays back to investors at maturity, independent

of fluctuations in market prices. Gross debt is a key indicator of fiscal sustainability and,

together with net debt, a key focus of the Government’s medium-term fiscal strategy.

The face value of AGS on issue is expected to be 45.1 per cent of GDP ($963 billion) at

30 June 2022 and increase to 50.0 per cent of GDP ($1,199 billion) at 30 June 2025.



Box 3.2 Government borrowing costs remain at historical lows

The COVID-19 pandemic has resulted in noticeable movements in the yields on Australian Government debt. In line with global trends, the poor economic outlook and elevated uncertainty sparked investor demand for the relative safety of government bonds and drove interest rates to historic lows (Chart 3.3). However, as confidence in the global economic outlook has grown more recently, bond yields in Australia and globally have increased. The spread between Australia’s long-term and short-term yields has increased relative to comparable economies, a sign of investor confidence in the strength of our recovery and the outlook for growth and inflation. Notwithstanding the recent increase, bond yields across all tenors are still lower than their average over the 2 years prior to 2019 when yields started to decline.

Chart 3.3: Yields on 5- and 10-year Australian Government Securities

Source: RBA.

While Government borrowing has increased sharply since the onset of the COVID-19 pandemic, the cost of servicing this debt remains modest owing to very low interest rates. In the period between 20 March 2020 and 3 May 2021, the Australian Office of Financial Management (AOFM) has issued $281.6 billion in Treasury Bonds, with a weighted average tenor of 9.4 years and a weighted average issuance yield of only 0.88 per cent. Based on current yields, an additional $1.6 trillion in debt would need to be issued in order for public debt interest as a share of GDP to reach the 1990’s peak of 2 per cent and $251 billion to reach 1 per cent.

0

1

2

3

4

5

0

1

2

3

4

5

May-14 May-15 May-16 May-17 May-18 May-19 May-20 May-21

%%

5 year AGS

10 year AGS



Box 3.2: Government borrowing costs remain at historical lows (continued)

The impact of the recent increase in yields on debt servicing costs has been tempered by the AOFM’s decisions to extend the yield curve over the last decade. In 2010, the weighted average term to maturity was around 5 years and the longest maturity available was only 12 years. The weighted average term to maturity is now 7.6 years and the yield curve extends to June 2051. Extending the yield curve has had the benefit of reducing the refinancing risk of existing debt and increasing the range of issuance options available. This has served the AOFM well in managing the large issuance program arising from the COVID-19 pandemic.

Over the forward estimates, the yield curve is assumed to remain fixed at the level observed prior to each Budget update. This results in a weighted average yield for future bond issuance of around 1.6 per cent compared with 0.8 per cent at the 2020-21 Budget.

Further information on assumed market yields on AGS used at this update and the AOFM’s issuance strategy during the pandemic is in Statement 7: Debt Statement.

Net debt estimates

Net debt is the sum of interest-bearing liabilities less the sum of selected financial assets. Net debt is a broader measure of fiscal sustainability than gross debt as it includes cash-like assets on the Government’s balance sheet as well as the market value of AGS on issue. It provides an indicator of the Government’s ability to meet its future debt

obligations.

Net debt is estimated to be 34.2 per cent of GDP ($729.0 billion) at 30 June 2022 (as shown

in Table 3.8), lower than the estimate of 40.4 per cent of GDP ($812.1 billion) at the 2020-21 Budget. The improvement in net debt since the 2020-21 Budget is driven by the Government’s decreased borrowing requirements resulting from the improvement in the underlying cash balance and a decrease in the market value of AGS due to higher yields than were assumed at the time of the 2020-21 Budget. Net debt is estimated to increase to 40.9 per cent of GDP ($980.6 billion) at the end of the forward estimates.

Further information on gross debt and net debt is provided in Statement 7: Debt Statement.



Table 3.9: Australian Government general government sector net financial worth, net debt and net interest payments Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$b $b $b $b $b

Financial assets 509.9 551.2 556.1 565.5 582.7

Non-financial assets 183.3 192.6 202.4 211.6 220.0

Total assets 693.2 743.8 758.5 777.1 802.7

Total liabilities 1,279.7 1,421.8 1,525.9 1,613.9 1,694.1

Net worth -586.5 -678.0 -767.4 -836.8 -891.4

Net financial worth(a) -769.8 -870.6 -969.8 -1,048.4 -1,111.4

Per cent of GDP -37.4 -40.8 -44.6 -46.0 -46.4

Net debt(b) 617.5 729.0 835.0 920.4 980.6

Per cent of GDP 30.0 34.2 38.4 40.4 40.9

Net interest payments 14.1 14.7 14.9 16.7 17.1

Per cent of GDP 0.7 0.7 0.7 0.7 0.7

(a) Net financial worth equals total financial assets minus total liabilities. (b) Net debt is the sum of interest bearing liabilities minus the sum of selected financial assets (cash and

deposits, advances paid and investments, loans and placements).

Net financial worth and net worth

Net financial worth is the sum of financial assets less liabilities. It includes all classes of

financial assets and all liabilities, only some of which are included in net debt. Both the

assets of the Future Fund and the public sector superannuation liability that the Future

Fund seeks to finance are included in net financial worth.

Net financial worth is estimated to be -$870.6 billion (-40.8 per cent of GDP) at

30 June 2022, an improvement of $76.1 billion compared with the estimate

of -$946.8 billion in the 2020-21 Budget.

A further measure of the Government’s financial position is net worth. Net worth is the

sum of all assets less all liabilities. It includes non-financial assets such as buildings and

plant, equipment and infrastructure. Net worth is expected to be -$678.0 billion

(-31.8 per cent of GDP) at 30 June 2022, an improvement of $76.6 billion compared with

the estimate of -$754.6 billion in the 2020-21 Budget.

The improvement in net financial worth and net worth are primarily driven by the same

drivers as the improvement in net debt.



Medium-term fiscal projections

The medium-term fiscal projections bring together projections of receipts, payments and

the Government’s assets and liabilities for the seven years beyond the forward estimates

period.

They outline the trajectory for the fiscal position under current policy settings and

prevailing economic assumptions, and provide the starting point to which future policy

changes would be applied.

The medium-term fiscal projections generally follow a base-plus-growth methodology,

whereby the forward estimates for receipts and payments form the ‘base’ to which

future growth is applied. Economic parameters are used to estimate growth rates

relevant to different components of receipts and payments. Key economic parameters

include nominal GDP, consumption, prices and wages, unemployment, population

growth and the structure of the population.

The economic parameters that underpin the medium-term fiscal projections are a

product of assumptions and are therefore subject to considerable uncertainty. Small

changes to underlying assumptions around the economy, or changes to future policy

settings, can have large impacts on projections of fiscal aggregates over the medium

term.

While the economic outlook has strengthened considerably, the COVID-19 pandemic is

still evolving. A recovery or response which differs from those expected would impact

the fiscal aggregates over the medium term. Further discussion of forecasting

uncertainty and the sensitivity of current forecasts to changes in key underlying

assumptions is contained in Statement 8: Forecasting Performance and Sensitivity Analysis.

The methodology underpinning the medium-term economic projections is explained in

Statement 2: Economic Outlook.



Underlying cash balance projections

The underlying cash balance is expected to improve from a deficit of 7.8 per cent of GDP

in 2020-21 to a deficit of 1.3 per cent of GDP by 2031-32.

While there is improvement in the underlying cash balance due to stronger tax receipts

on the back of the stronger economic outlook, the Government has also made

investments to guarantee high quality essential services, in areas such as aged care and

mental health. This means that, at the end of the forwards, the underlying cash balance

is expected to be largely unchanged compared to the estimates at the 2020-21 Budget.

The trajectory for the underlying cash balance across the medium term continues to be

largely in line with projections at the 2020-21 Budget (Chart 3.4).

Chart 3.4: Underlying cash balance as a share of GDP

-12

-10

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-6

-4

-2

0

-12

-10

-8

-6

-4

-2

0

2016-17 2019-20 2022-23 2025-26 2028-29 2031-32

% of GDP% of GDP

2021-22 Budget

2020-21 Budget

Medium termEstimates

Source: Treasury projections.



Receipts and payments projections

Total receipts are projected to have increased since the 2020-21 Budget, mainly driven

by higher projected tax collections. Tax receipts are highly responsive to economic

developments. Projections for a quicker and stronger economic recovery than originally

anticipated have therefore increased the level of tax receipts expected across the forward

estimates and medium term. Further information on tax receipts can be found in

Statement 5: Revenue.

Chart 3.5 shows the level of total receipts projected to 2031-32.

Chart 3.5: Total receipts

300

400

500

600

700

800

900

300

400

500

600

700

800

900

2016-17 2019-20 2022-23 2025-26 2028-29 2031-32

$b$b

2021-22 Budget

2020-21 Budget

Estimates Medium term

Note: Total receipts include taxation and non-taxation receipts. Source: Treasury projections.

Payments are expected to fall from a peak of $660.8 billion in 2020-21, reflecting the

temporary and targeted nature of COVID-19 emergency support payments such as the

JobKeeper Payment.

Although payments fall from the peak, they are expected to be higher than estimated at

the 2020-21 Budget from 2021-22 to the end of the medium term (see Chart 3.6). This

reflects the Government’s commitment to guaranteeing high quality and sustainable

essential services. Key payment programs that are projected to increase across the

medium term are aged care, the National Disability Insurance Scheme, and payments to

individuals. Projections are also higher across a range of payment programs, reflecting

higher indexation as a result of higher prices associated with the stronger than expected

economy.

Further information on payments can be found in Statement 6: Expenses and Net Capital

Investment.



Chart 3.6: Total payments

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600

700

800

900

1000

300

400

500

600

700

800

900

1000

2016-17 2019-20 2022-23 2025-26 2028-29 2031-32

$b$b

2021-22 Budget

2020-21 Budget

Estimates Medium term


Payments as a share of GDP are projected to fall from a COVID-19 peak of

32.1 per cent of GDP in 2020-21 and remain flat across the medium term. This reflects

the temporary and targeted nature of COVID-19 support. At the end of the medium

term, payments are projected to be 26.2 per cent of GDP.

Receipts as a share of GDP are projected to increase from 2021-22 to the end of the

medium term. Under Australia’s progressive taxation system, higher wage levels result

in a projected increase in tax receipts as a share of the economy across the medium term.

By the end of the medium term, the tax-to-GDP ratio is projected to reach

23.1 per cent of GDP. This is consistent with the Government’s Economic and Fiscal

Strategy which outlines the Government’s commitment to maintaining a sustainable tax

burden, with a tax-to-GDP ratio at or below 23.9 per cent of GDP.

Chart 3.7 shows total payments and total receipts as a share of GDP projected to 2031-32.



Chart 3.7: Total payments and receipts as a share of GDP

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36

18

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32

34

36

2016-17 2019-20 2022-23 2025-26 2028-29 2031-32

% of GDP% of GDP

Total receipts

Total payments

Medium term Estimates

Note: Total receipts includes taxation and non-taxation receipts. Source: Treasury projections.

Gross debt projections

Gross debt as a share of GDP is projected to be lower in each year of the forward

estimates and medium term than projected at the 2020-21 Budget (Chart 3.8). Gross debt

is projected to stabilise at around 51 per cent of GDP over the medium term, compared

to around 55 per cent of GDP at the 2020-21 Budget.

Australia’s debt position is fiscally sustainable given projections for strong economic

growth to continue over the medium term. The economic growth rate is projected to

exceed the interest rate on debt, with the result that debt as a share of GDP stabilises

over time notwithstanding the projected underlying cash deficit. Further details on

Government debt levels can be found in Statement 7: Debt Statement.



Chart 3.8: Gross debt as a share of GDP

20

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40

50

60

20

30

40

50

60

2016-17 2019-20 2022-23 2025-26 2028-29 2031-32

% of GDP% of GDP

2020-21 Budget

2021-22 Budget

Medium term Estimates

Source: Australian Office of Financial Management and Treasury projections.

Net debt projections

Net debt is estimated to peak at 40.9 per cent of GDP at 30 June 2025, before improving

over the medium term to reach 37.0 per cent of GDP at 30 June 2032, as shown in

Chart 3.9. Net debt, as a share of GDP, is projected to fall over the medium term more

quickly than gross debt because net debt is based on the market value of AGS which

falls as yields rise. Net debt as a share of GDP is projected to be lower in each year of the

medium term compared to at the 2020-21 Budget.

Chart 3.9: Net debt as a share of GDP

15

20

25

30

35

40

45

50

15

20

25

30

35

40

45

50

2016-17 2019-20 2022-23 2025-26 2028-29 2031-32

% of GDP% of GDP

2020-21 Budget

2021-22 Budget





Net financial worth projections

Net financial worth improves as a share of GDP over the medium term,

reaching -46.4 per cent of GDP at 30 June 2025, before improving to -40.5 per cent of GDP

at 30 June 2032 as shown in Chart 3.10.

Chart 3.10: Net financial worth as a share of GDP

-55

-50

-45

-40

-35

-30

-25

-55

-50

-45

-40

-35

-30

-25

2016-17 2019-20 2022-23 2025-26 2028-29 2031-32

% of GDP% of GDP

2020-21 Budget

2021-22 Budget



Structural budget balance estimates

Estimates of the structural budget balance can provide broad insights into the

sustainability of fiscal settings. Changes in the structural budget balance provide an

indication of the impact that government decisions have on the budget position,

independent of the current phase of the economic cycle.

The structural budget balance is estimated by removing temporary movements in

receipts and payments from the underlying cash balance. These shifts are caused by

cyclical factors such as temporary deviations in real GDP from potential (the output gap)

or temporary deviations of commodity prices from their long-run trends, as well as

temporary fiscal measures designed to support the economy through an economic crisis.

Cyclical factors are expected to provide a small contribution to the budget position over

the forward estimates. In the near term, this largely reflects the impact of an elevated

terms of trade, particularly due to higher iron ore prices, which more than offsets the

effect of a negative output gap on receipts and payments in 2020-21 and 2021-22. By the

end of the forward estimates, the contribution from cyclical factors is modest, consistent

with the iron ore price having declined to its long-run assumption and an output gap

that is closed.



In the near term, the unprecedented temporary economic support measures, in response

to COVID-19, make significant contributions to the deterioration in the underlying cash

balance. The underlying cash balance improves steadily from 2020-21 as the temporary

measures are unwound and the structural budget balance improves from 2022-23.

Chart 3.11: Structural budget balance

-10

-8

-6

-4

-2

0

2

-10

-8

-6

-4

-2

0

2

2010-11 2013-14 2016-17 2019-20 2022-23 2025-26 2028-29 2031-32

% of GDP% of GDP

Structural budget balance Cyclical factors

Temporary fiscal measures Underlying cash balance

Estimates

Note: The presentation of the structural budget balance chart has been adjusted to separate the budgetary

impact of temporary measures from structural factors. This approach follows the methodology detailed in Treasury Working Paper 2013-01. ‘Temporary measures’ comprise total direct economic and health support since the start of the COVID-19 pandemic. The ‘cyclical factors’ component comprises the estimated impact on the underlying cash balance from automatic stabilisers and cyclical movements in asset and commodity prices.

Source: Treasury.

Statement 4: The labour market through COVID-19 | Page 103

Statement 4: The labour market through COVID-19

The labour market recovery in Australia has exceeded all expectations. Compared with major advanced economies, Australia is the first economy to have recovered hours worked and employment to pre-pandemic levels.

The Government’s policy response has played a significant role in supporting the labour market through the COVID-19 recession and setting it up for a strong recovery. This includes policies aimed at boosting household incomes, ensuring business continuity and preserving economic and financial linkages.

As a result, Australia is set to avoid the worst of the economic scarring effects seen following past recessions. The size of the COVID-19 shock, coupled with the speed of labour market deterioration, made economic scarring a real possibility as the crisis unfolded. In the 1990s recession, the unemployment rate took a decade to recover to its pre-crisis level. In contrast, the unemployment rate is now on track to recover in just two years.

The next priority must be to lock in the substantial benefits that have been achieved. While Australia is emerging from the COVID-19 shock with a strong recovery in activity and employment, the outlook for the global economy remains highly uncertain. With 800,000 COVID-19 cases diagnosed daily across the world, new strains of the virus emerging and international travel restrictions yet to be lifted, the effects of COVID-19 may not dissipate for some time yet.

In this context, it is crucial that the Government continues to support a strong labour market that is both flexible and resilient. The fiscal support contained in this Budget will provide broad-based support to the economy, stimulating economic activity and driving down the unemployment rate. This is consistent with the Government’s Economic and Fiscal Strategy to drive the unemployment rate down to pre-pandemic levels or below. This Budget will also support cohorts who face greater risks and challenges in the labour market.

With sound policy and an improving global outlook, the Australian economy is on course to do better than merely recover to its pre-pandemic levels, with the unemployment rate forecast to reach 4¾ per cent in the June quarter 2023. The unemployment rate in Australia has only been sustained below 5 per cent once since the early 1970s and this Budget sets us on a course to achieve this again.

The Australian economy may be able to sustain lower unemployment rates ⎯ and this will mean more Australians finding work, and setting the foundations for a strong, resilient and productive economy in the longer term.


Contents

The impact of COVID-19 ............................................................................. 107 The risks of economic ‘scarring’ .................................................................................. 108

The policy response ................................................................................... 110

The labour market recovery and JobKeeper transitions ......................... 113

Supporting the recovery ............................................................................ 119 Supporting women in the workforce ............................................................................ 119 Helping younger workers ............................................................................................ 120 Getting the long-term unemployed back into work ...................................................... 121 Supporting the broader labour market ........................................................................ 122


Statement 4: The labour market through COVID-19

The impact of COVID-19

The COVID-19 pandemic led to Australia’s first recession in almost 30 years. Not only

had Australia not faced an economic shock of such magnitude for decades, the nature

of the shock was quite different to previous downturns. As such, there was the need for

a different framework to guide the development of a policy response that tackled the

health crisis and the potential for long-term economic damage.

Past experiences with infectious diseases, such as the Avian Flu and the Severe Acute

Respiratory Syndrome (SARS) had provided the basis for analysing the economic effects

of a pandemic. The economic effects of pandemics tend to spread quickly as the disease

itself spreads quickly across international borders. The effect is magnified as the shock

to one country is transmitted to other countries through trade and financial linkages.5

These spillovers have been evident during the COVID-19 pandemic, with substantial

disruptions to global value chains and a sharp contraction in global growth over 2020.

On the domestic front, earlier analysis ⎯ including work published by Treasury in

2006 ⎯ identified three key channels through which pandemics impact the economy.6

First, pandemics lower consumer confidence and therefore consumption, even with a

small number of deaths. Second, business investment contracts due to weaker demand,

lower confidence, and increased domestic and global uncertainty. Both of these channels

were evident in Australia during COVID-19.

Third, a pandemic has significant effects on the labour market, decreasing both the

supply of, and demand for, labour through absenteeism and activity restrictions. This

third channel makes pandemic-related shocks such as COVID-19 different to previous

downturns in the early 1980s, the early 1990s and the Global Financial Crisis (GFC).

During COVID-19 this last channel was significant. The need to protect the community

and its most vulnerable members saw the rapid imposition of activity and travel

restrictions. These restrictions led to a deep and sharp downturn in employment ⎯ the

largest on record ⎯ as well as a sharp increase in the number of workers on reduced

hours (Chart 4.1).

5 See for example: Lee J and McKibbin W (2004), ‘Estimating the Global Cost of SARS’, in

Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary, 2004 and McKibbin W and Fernando R (2020), ‘The global macroeconomic impacts of COVID-19: Seven scenarios’ CAMA Working Papers Vol 19/2020.

6 Kennedy S, Thomson J and Vujanovic P (2006), ‘A Primer on the Macroeconomic Effects of an Influenza Pandemic’, Treasury Working Paper 2006-01, February 2006.


Page 108 | Statement 4: The labour market through COVID-19

Chart 4.1 Labour market indicators

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0

400

800

1,200

1,600

2,000

Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21

%000s

People working fewer than their usual hours, or no hours at all, for

economic reasons(LHS)

Employment/population ratio(RHS)

Note: People working fewer than their usual hours, or no hours at all, for economic reasons, includes those

receiving JobKeeper payments. Source: ABS Labour Force, Australia, Detailed.

The risks of economic ‘scarring’

The imposition of restrictions met the overriding policy priority of protecting the health

of the Australian people. However, past experiences have shown that economic

downturns can have long-term adverse effects on the economy, known as ‘scarring’, and

unemployment can remain elevated for a sustained period following a downturn.7

Downturns increase job separations and churn, and can destroy what had been viable

businesses. In turn, this can sever productive employee-employer relationships, end

business-to-business linkages, and destroy firm-specific human and intangible capital.

The risk of this was acute in the context of COVID-19, given the widespread nature of

the restrictions meant that many highly productive and otherwise viable firms may have

closed.

For individuals, downturns often lead to sharp increases in the number of long-term

unemployed. If people are unemployed for an extended period it can cause a

deterioration in their skills that may require them to retrain or relocate for new

employment opportunities. A slump in the demand for labour can also mean that new

entrants to the labour market, such as recent graduates, are unable to secure a solid

foothold, limiting their future job opportunities for many years.

7 See for example Day I and Jenner K (2020), ‘Labour Market Persistence from Recessions’, RBA

Bulletin, 17 September 2020.



Typically the most affected workers in a downturn are those in the hardest hit industries.

This proved to be the case during the COVID-19 downturn. In addition, employment

status also had a large bearing on labour market outcomes, with part-time and casual

workers experiencing the largest declines.

In past recessions, the most affected cohorts tended to be men in full-time jobs in sectors

such as manufacturing. In contrast, the industries most affected by the pandemic were

accommodation and food services and arts and recreation services, and casual workers

were far more likely to lose employment than permanent employees.8 As a consequence,

women and young people were more likely to lose work. Job losses were also more

notable for individuals with lower levels of educational attainment (see Chart 4.2),

English proficiency, and in lower income quintiles.

Chart 4.2 Employment to population ratio by educational attainment

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102

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94

96

98

100

102

Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21

Index(Mar 2020=100)

Index(Mar 2020=100)

Bachelor or above

Other post-school

No post-school

Source: Treasury analysis using ABS Longitudinal Labour Force Survey.

The differing cohorts affected by this crisis may have meant that there were additional

or different dimensions and risks around labour market scarring. For some of these

groups, the scarring may have exacerbated existing economic insecurities, such as for

lower-skilled workers and women. For younger workers, it may have disrupted the

formative years in their careers.

8 For example, based on analysis of newly available Labour Force Survey microdata, an

individual working in accommodation and food services was over 20 percentage points more likely to lose work (either through job loss or a reduction in hours) between February and April 2020, after accounting for other differences. Working in arts and recreation services increased the probability of losing work by almost 30 percentage points. Casual workers were around 20 percentage points more likely to lose work than permanent employees.



Analysis of historical firm-level data shows that firm closures lead to persistent wage

scarring for workers of all age cohorts. For older workers this entirely reflects a lower

likelihood of finding a new job, while younger workers still face persistent wage scarring

even when they are able to find new employment.

Similarly, Australians graduating into a local labour market where the youth

unemployment rate was 5 percentage points higher can expect to earn roughly

8 per cent less in their first year of work, and 3½ per cent less after five years. It takes

around a decade for this effect to fully disappear. Female graduates experience even

more labour market scarring than men.9

It was with this potential for scarring in mind that the large and rapid fiscal response

was developed. The response was designed to maintain productive employee-employer

relationships, support productive and viable businesses, and provide income support to

those most affected by the downturn. The further support in the 2021-22 Budget,

outlined below in ‘Supporting the Recovery’, is targeted at getting vulnerable cohorts

into work and driving the unemployment rate down to further mitigate scarring from

extended periods of unemployment.

The policy response

As the COVID-19 health crisis unfolded during March 2020, three Economic Response

Packages were rapidly introduced. The support was underpinned by clear principles:

that it be temporary, targeted, scalable, proportionate and use existing mechanisms.

The support packages assisted the economy through three key channels: helping

households, directly supporting businesses, and preserving the link between employees

and employers.

Individuals and households were supported through the payment of a Coronavirus

Supplement to certain income support payment recipients, four Economic Support

Payments, and temporary early release of superannuation. These policies helped to

support those who had lost employment and who were not supported directly by the

other policies aimed at businesses and employees.

Businesses were supported through a number of investment incentives, cash flow boost

payments, a wage subsidy to retain apprentices and trainees, and targeted support for

the most severely affected sectors and regions. Businesses were also supported with loan

guarantees, increased availability of credit, and insolvency reforms.

9 See Andrews D, Deutscher N, Hambur J and Hansell D (2020), ‘The Career Effects of Labour

Market Conditions at Entry’, Treasury Working Paper 2020-01, June 2020.



Businesses and their employees were further supported in the third economic support

package with the announcement of the JobKeeper Payment. It was the largest one-off

fiscal measure in Australia’s history, supporting more than 3.8 million individuals and

over one million organisations from March to September 2020. The JobKeeper Payment

had a number of objectives including: preserving employee and employer relationships,

providing additional income for households, and decreasing uncertainty. It was

expressly designed to work in conjunction with the JobSeeker Payment (enhanced by

the Coronavirus Supplement). For example, some employees who had more tenuous

relationships with their employers were supported by JobSeeker instead of JobKeeper.10

The JobKeeper Payment was complemented with temporary changes to the

Fair Work Act 2009 which gave businesses the ability to adapt workplace arrangements

to the challenging economic conditions. These policies were designed and implemented

in an environment where a large number of businesses faced strict public

health restrictions, resulting in significant job losses and reduced incomes.

From September 2020, the JobKeeper Payment was tapered and extended by six months,

conditional on businesses re-establishing their eligibility for support.

The Government response was targeted towards vulnerable cohorts who had been hit

hardest by the shocks, allowing them to continue spending and, in some cases, save.

Average incomes in the lowest two income quintiles increased in the June 2020 quarter,

despite larger declines in employment for these groups, reflecting the Coronavirus

Supplement and JobKeeper (see Chart 4.3). Average incomes in these quintiles remained

above pre-pandemic levels through 2020, even as the JobKeeper Payment and the

Coronavirus Supplement were tapered as labour income recovered in line with the

improvement in employment. In comparison, the third and fourth income quintiles saw

broadly no change in income from March to December 2020, while the top quintile

experienced a sustained lower level of income throughout the year.

10 JobSeeker arrangements were modified in a number of ways to support employees retaining

an attachment to their employers. Separation certifications were no longer required to access the JobSeeker Payment, and partner income tests were eased, as were waiting periods.



Chart 4.3 Individual fortnightly wages and welfare payments by income quintile (left), and employment index by income quintile (right)

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Mar-20 Jun-20 Sep-20 Dec-20

IndexIndex

1st

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ESPs JK and JS

reduced

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Mar-20 Jun-20 Sep-20 Dec-20

IndexIndex

1st

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3rd

4th

5th

Note: Quintiles based on 2019 financial year salary income, ranked from lowest income (first quintile) to

highest income (fifth quintile). ESPs refers to Economic Support Payments. JK refers to the JobKeeper Payment and JS refers to the JobSeeker Payment. For the first chart, the spike in September reflects processing changes when the Coronavirus Supplement was reduced, which resulted in some October payments being brought forward. For both charts, the decrease in December reflects seasonality over the Christmas period.

Source: Treasury analysis of tax and welfare payment microdata; ABS Australian National Accounts: National Income, Expenditure and Product.

The policies kept viable businesses afloat. Over the course of 2020 the number of

business insolvencies was subdued, with around 40 per cent fewer companies entering

external administration than in 2019.

By keeping businesses afloat, the suite of support policies also kept jobs intact.

The JobKeeper Payment was an important component of this. It maintained

employee-employer relationships through the worst of the crisis, reducing and then

stabilising the rate of decline in employment.11 The RBA estimated that the JobKeeper

Payment increased the likelihood of a JobKeeper-nominated employee remaining

employed over the April to July 2020 period by around 20 per cent. This implied the

JobKeeper Payment saved at least 700,000 jobs at the height of the crisis.12

These policies provided a great deal of support to the economy, and helped to drive the

economic recovery. Moreover, they will continue to contribute to the economic recovery

even as they are tapered because much of the financial support provided remains on

households’ and businesses’ balance sheets, and will contribute to spending in the

coming quarters.

11 Treasury (2020), ‘The JobKeeper Payment: Three-month review’, 21 July 2020. 12 Bishop J and Day I (2020), ‘How Many Jobs Did JobKeeper Keep?’, RBA Research Discussion

Paper 2020-07, November 2020.



The labour market recovery and JobKeeper transitions

The recovery in the labour market since mid-2020 has been unprecedented. Employment

reached a record high of 13.1 million in March 2021 (0.6 per cent higher than a year

earlier), and the unemployment rate is down to 5.6 per cent. Total monthly hours

worked is now 1.2 per cent higher, and the number of people working zero hours for

economic reasons has fallen below pre-pandemic levels.

The recovery has significantly outpaced the protracted recoveries experienced in past

downturns (see Chart 4.4), and those of other advanced economies during COVID-19

(see Box 4.1). Workers who lost their jobs were far more likely to be re-employed quickly

compared to past downturns, improving outcomes for individuals and ameliorating

some concerns around scarring. For example, based on Labour Force Survey microdata,

workers who lost their job in 2020 were 17 per cent more likely to be re-employed after

six months compared with workers who lost their jobs during the early 1990s recession.

Chart 4.4 Change in unemployment rate during downturns

0

1

2

3

4

5

6

0

1

2

3

4

5

6

0 6 12 18 24 30 36

pptppt

Months since start of dow nturn

1980s recession

1990s recession

GFC

COVID-19

Forecasts

Source: ABS Labour Force, Australia; Treasury.



Box 4.1: International comparison

Australia’s labour market continues to perform favourably compared with all major advanced economies. Compared with major advanced economies who have published data for March 2021, Australia is the first economy to have recovered hours worked and employment to pre-pandemic levels.

Chart 4.5 Employment levels, Australia and the G7 economies

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102

82

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102


Australia

Canada

UnitedStates

Japan

United Kingdom

Italy

France^ Germany

Index: Dec-19 = 100 Index: Dec-19 = 100



Box 4.1: International comparison (continued)

Chart 4.6 Hours worked, Australia and the G7 economies

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Australia

Canada

UnitedStates

Japan

United Kingdom

Italy

France^

Germany^

Index: Dec-19 = 100 Index: Dec-19 = 100

^Data are quarterly and latest data are for the December quarter. Note: Data are monthly and cover the cohort aged 15+ unless otherwise specified.

UK employment and total hours worked data are a 3-month moving average from December 2020 to February 2021. France’s total hours worked data are for the cohort aged 20-65 years. Due to definitional differences, care must be taken when comparing employment data across countries. Data is up to date as at 6 May 2021.

Source: Refinitiv; National statistical agencies; ABS Labour Force, Australia.

The combination of well-targeted economic support, $291 billion as at this Budget, and

the lifting of restrictions on activities, means that the labour market has rebounded

quickly. Many workers were able to return to their previous jobs supported by policies

to keep businesses afloat, with a record number of entries into pre-existing jobs.13

Further, the proportion of the recovery that reflected people returning to past jobs was

higher in sectors that were more heavily affected by temporary COVID-19 restrictions,

such as accommodation and food services, and arts and recreation services (see

Chart 4.7).14

13 Based on Labour Force Survey microdata. 14 Based on Single Touch Payroll microdata.



Chart 4.7 Share of recovery in employment from April to June 2020 explained by workers returning to previous jobs

0

20

40

60

80

100

0

20

40

60

80

100

%%

Note: Shows the percentage of the mid-April to mid-June recovery accounted for by the recovery in jobs

that existed before 1 March 2020 — namely the change in pre-existing jobs divided by the change in total jobs over this period, expressed as a percentage.

Source: Treasury analysis of Single Touch Payroll data.

As the labour market recovers, transitioning away from job retention schemes (such as

the JobKeeper Payment) towards policies that promote labour reallocation is important.

Barrero, Bloom and Davis (2020) highlight the risk that policies designed for the height

of the recession outstay their welcome and distort incentives to seek new employment,

while policies that facilitate reallocation of labour can improve the speed of the

recovery.15 The IMF has highlighted that employment reallocation policies can help ease

the adjustment process to some of the more persistent effects of the pandemic.16

By early 2021, there was substantial evidence that the labour market was recovering

strongly, allowing a smooth transition from JobKeeper and the Coronavirus Supplement

and for private sector-led growth to play a greater role in the recovery.

15 Barrero J M, Bloom N and Davis S J (2020), ‘COVID-19 is Also a Reallocation Shock’, May 2020. 16 International Monetary Fund (2021) ‘World Economic Outlook: Managing Divergent

Recoveries’, Washington, DC, April 2021.



The JobKeeper transition at the end of the September 2020 quarter was relatively

smooth. Around two million individuals (employees and business participants)

transitioned off JobKeeper at the end of September 2020. The vast majority of the

employees that transitioned off JobKeeper during this period remained in employment.

Although total employment at organisations transitioning off the JobKeeper Payment

remained broadly unchanged, experiences differed across firms. Some organisations

grew as operating conditions and confidence in the economic outlook improved. Others

shrank, shedding workers as they rolled off the Payment. Overall, these two effects

broadly offset each other.17 This highlights the dynamism and resilience of the

Australian labour market. This also alleviates some concerns that transitioning

organisations might shed JobKeeper workers and hire casuals.

There was only a modest increase in the number of people moving off the JobKeeper

Payment and onto other forms of income support, such as JobSeeker and

Youth Allowance (Chart 4.8). Unemployment levels have fallen in each successive

month since October with nearly half a million jobs created since the initial transition

from JobKeeper in September.

The second transition at the end of the December 2020 quarter appears to have been

similarly smooth.

17 Based on Single Touch Payroll microdata.



Chart 4.8 Weekly income support flows for individuals on the first phase of the JobKeeper Payment

-20

-10

0

10

20

30

40

-20

-10

0

10

20

30

40

Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21

'000'000

Move off income

support

Moveonto income

support

JobKeeper phase one ends(27 September 2020)

JobKeeper started (30 March 2020)

Note: Income support includes Newstart Allowance, JobSeeker Payment and Youth Allowance (Other).

Flows onto and off income support payments include flows from nil rate recipient status to being in receipt of a payment. Two week moving average.

Source: Treasury analysis of tax and welfare payment microdata.

In the final quarter of the JobKeeper Payment (January to March 2021), reliance on the

Payment reduced further to around 1.1 million individuals and around

385,000 organisations.

Following the conclusion of the JobKeeper Payment, early data indicates the labour

market has remained resilient. Job vacancies rose to reach a record high and the number

of job seekers for every vacancy fell to its lowest level in over a decade, while the number

of people on unemployment benefits has continued to fall.

Supporting household incomes, keeping firms afloat, and maintaining

employee-employer relationships has played a crucial role in reducing potential

business and labour market scarring, allowing Australia to recover swiftly.

The conclusion of emergency support measures to avoid scarring and transitioning to

policies that encourage private sector-led activity will allow the labour market to

reallocate resources more efficiently and further drive recovery.



Supporting the recovery

The measures contained in this Budget will provide broad-based support to the

economy and are expected to drive the unemployment rate down, consistent with the

Government’s Economic and Fiscal Strategy of pre-pandemic levels or below. This

includes the Government’s extension of the low and middle income tax offset, business

tax relief, infrastructure investment and the significant Government investment in a

range of essential services. This broad macroeconomic support will stimulate aggregate

demand and economic activity, helping to drive down the unemployment rate.

The Budget is also aimed at assisting cohorts who face greater risks and challenges in

the labour market. By building the skills that workers need, and removing barriers to

employment faced by women and the long-term unemployed, these measures will help

move people into employment and support building a flexible, resilient and productive

economy.

Supporting women in the workforce

As noted above, labour market outcomes for women have largely recovered to their

pre-pandemic levels. However, even before COVID-19, female participation was well

below male participation. COVID-19 has also highlighted existing economic insecurity

for women. Raising the female participation rate will assist with the recovery, address

longer-term structural issues in the labour force and improve women’s economic

security (for more information see Women’s Budget Statement).

The 2021-22 Budget provides further assistance to raise women’s participation in the

labour market. The Government is investing an additional $1.7 billion into the Child

Care Subsidy, which assists parents with the cost of child care while they are working,

training, studying or volunteering. The measure focuses on families with multiple

young children in child care, where the secondary earner (often female) can face

particularly high financial disincentives to take on additional work.

Changes to the Child Care Subsidy and the removal of the annual cap are estimated to

add up to 300,000 hours of work per week, which would be the equivalent of around

40,000 individuals working an extra day per week.

As many women take time out of the workforce during their careers, the 2021-22 Budget

includes measures to support women to return to work after a career break.

This includes improving access to the Mid-Career Checkpoint program, which provides

free career counselling to help people re-enter the workforce or advance their careers

after returning to work. It also includes an expansion of the Career Revive program,

which supports medium to large businesses to attract and retain women who are

returning to work.



The 2021-22 Budget also delivers a range of programs to encourage women into

leadership positions and into diverse industries and occupations. An expansion of the

Women’s Leadership and Development Program will include further funding for

successful Women@Work projects such as the Academy for Enterprising Girls, and an

expansion of the National Careers Institute’s Partnership Grant Program will have a

specific focus on career opportunities and pathways for women. The Government will

also establish the Boosting the Next Generation of Women in STEM Program with an

investment of $42.4 million over seven years.

Helping younger workers

Employment among young people has almost recovered to pre-pandemic levels,

mitigating some of the concerns about long-term scarring, but some risk still remains.

The number of young workers (15-24) looking for full-time employment who have been

unemployed for more than 12 months has increased by 54 per cent between

March 2020 and 2021. Many of these young workers looking for ‘careers’ are likely to

find jobs as the labour market continues to improve. But given the importance of early

labour market outcomes for career trajectories, this Budget also contains policies aimed

at getting young people upskilled and into work.

The 2021-22 Budget will help provide young people with relevant skills and experience

to ensure they can access good job opportunities in the recovery period ahead.

The Government’s commitment to extend the JobTrainer Fund, subject to matched

funding by state and territory governments, will provide a further 163,000 free or

low-fee training places in areas of skills need, helping people access valuable upskilling

and reskilling opportunities. The extension and expansion of the Boosting

Apprenticeship Commencements wage subsidy will also provide more opportunities

for young people to upskill and reskill.

In addition, new avenues for young people to move into digital careers will be created

through the Digital Skills Cadetship Trial. Recognising the need for specialist skills in

emerging fields such as artificial intelligence, robotics and quantum computing, the

Government will provide assistance through funding for more than 460 new

scholarships.

The 2021-22 Budget also provides tailored assistance to young people to help them move

into employment. Transition to Work, an intensive employment program for young

people, is expected to support an average caseload of around 41,000 disadvantaged

people each year to transition into work or education (including apprenticeships or

traineeships). The National Careers Institute service, which provides independent and

impartial careers information and advice, is being extended to support young people to

make well-informed decisions about their education and career paths through career

coaching sessions.



Getting the long-term unemployed back into work

Success in re-entering employment becomes significantly harder the longer an

individual is unemployed. This reflects a range of factors, including the atrophy of

critical employability skills which are highly valued by employers. Despite the strong

recovery, the long-term unemployment rate (those unemployed for one year and over)

has increased (Chart 4.9). While many of these workers are likely to find work as the

economy recovers, policies to assist in the process are still valuable.

Because of this, the 2021-22 Budget is focusing on transitioning the long-term

unemployed back into work, which will also help to achieve and sustain a lower

unemployment rate.

Chart 4.9 Long-term unemployment rate and unemployment rate

0

1

2

3

4

5

6

7

8

9

10

11

12

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Mar-91 Mar-94 Mar-97 Mar-00 Mar-03 Mar-06 Mar-09 Mar-12 Mar-15 Mar-18 Mar-21

%%

Long-term unemployment rate (LHS)

Unemployment rate (RHS)

Source: ABS Labour Force, Australia and ABS Labour Force, Australia, Detailed.

The Government is assisting those who are already long-term unemployed by

expanding the support available to them in employment services. All wage subsidies

under the existing jobactive program are being increased to $10,000 until 30 June 2022,

after which wage subsidies of up to $10,000 will be available under the enhanced

services stream of the new employment services program. The introduction of the new

employment services program in July 2022 will also deliver more tailored support to job

seekers, including the long-term unemployed, which will help them overcome barriers

to employment.

In addition, the 2021-22 Budget is ensuring the long-term unemployed have the

opportunities to gain the skills employers seek. The Skills for Education and

Employment program will be uncapped and expanded, ensuring that more job seekers

in employment services can receive the training they need in foundation skills such as

literacy and numeracy, as well as digital skills.



Supporting the broader labour market

The labour market recovery to date has been remarkable and ameliorates many concerns

about labour market scarring. However, there is still more work to do. Both Treasury

and the RBA have estimated that the Non-Accelerating Inflation Rate of Unemployment

(NAIRU) in the economy is lower than previously thought (see Box 4.2). This implies

that the Australian economy can do more than recover to its pre-pandemic

unemployment rate ⎯ that it can realise and sustain unemployment rates below

5 per cent. Economic policy can play an important role achieving this.



Box 4.2: The Non-Accelerating Inflation Rate of Unemployment (NAIRU)

The NAIRU is the rate of unemployment associated with stable wage and price growth. The difference between the observed unemployment rate and the NAIRU is often considered to be a key measure of labour market slack. An unemployment rate below the NAIRU indicates a tight labour market, which will cause wages and prices to be bid up.

Chart 4.10 Decline in NAIRU over time

0

2

4

6

8

10

12

0

2

4

6

8

10

12

%%

Unemployment rate

NAIRU

95% confidence interval


Source: ABS Labour Force, Australia; Treasury.

In Australia, NAIRU estimates have trended downwards over recent decades (see Chart 4.10). This is due to structural trends such as increased competition in goods markets, increases in services being provided internationally, advances in technology, and changes in the supply of labour.

Estimating the NAIRU presents difficulties as it is not directly observable, and its estimates are thus inherently uncertain. Nonetheless declining inflationary and wage pressures over recent years despite low and declining rates of unemployment have provided evidence that the NAIRU has been lower than previously thought. This is consistent with the experience of other advanced economies, where wage growth began picking up prior to the pandemic, but at lower levels of unemployment than previously expected.



Box 4.2: The Non-Accelerating Inflation Rate of Unemployment (NAIRU) (continued)

Both the Treasury and RBA have estimated that the NAIRU was lower than previously thought prior to the COVID-19 crisis. Australia’s NAIRU was previously thought to be around 5 per cent, but based on updated modelling, Treasury believes it was within a range of 4.5 to 5 per cent preceding COVID-19.18

Large adverse shocks to the economy can lead to labour market scarring, with workers’ skills depreciating, and thereby push up the NAIRU. Although there is still a risk that certain cohorts will find it difficult to gain employment, the strong labour market recovery to date is cause for optimism that such scarring is likely to be far less pronounced following the COVID-19 shock.

Moving the economy towards full capacity and maintaining price stability is normally

a role for monetary policy. However, with monetary policy currently constrained, there

is a role for fiscal policy to assist in a sustainable manner. That is, there is a greater role

for fiscal policy to drive unemployment down further to generate increases in wage

growth and inflation, without generating excessive inflation. This is consistent with the

Government’s Economic and Fiscal Strategy to drive the unemployment rate down to

pre-pandemic levels or below.

Doing so, and locking in the recovery seen to date, is particularly important in light of

the ongoing uncertainties on the health and economic fronts. Around the world, more

than 800,000 new cases of COVID-19 are being diagnosed every day, with new strains

of the virus emerging. Our international borders are still largely closed, and while the

vaccine rollout is progressing both here and abroad, it remains at a very early stage.

In this context, while the outlook is strong, it is important to continue to support the

economy and ensure that the recovery is locked in. The fiscal support contained in this

Budget will provide broad-based support to the economy, stimulating economic

activity, creating jobs and driving down unemployment. The measures in this Budget

will also assist cohorts that may otherwise face great risks and challenges in the

recovery. In doing so, the Government is prioritising job creation as Australia’s pathway

to a stronger economy, and a stronger budget position. And with their focus on skills

and participation, and emphasis on the digital economy and innovation, the policies in

this Budget are designed to boost the economy’s productive capacity, raise living

standards, and set Australia up for the future.

18 Ruberl H, Ball M, Lucas L and Williamson T (2021), ‘Estimating the NAIRU in Australia’,

Treasury Working Paper 2021-01, 29 April 2021.

Statement 5: Revenue | Page 125

Statement 5: Revenue

As the Australian economy continues to recover from the impacts of the COVID-19 pandemic, the outlook for revenue has improved significantly.

The upward revision to revenue is the largest in the past decade. Parameter and other variations since the 2020-21 Budget have increased tax receipts by $107.1 billion over the four years to 2023-24. The upward revision is driven by a number of factors. A stronger economic recovery and elevated iron ore prices have supported company tax receipts and domestic consumer spending has supported a strong rebound in GST receipts. The rapid recovery in the labour market has supported higher personal income tax receipts. Over the latter half of the forward estimates period, an improvement in the outlook for employment is expected to drive higher prices and wages growth, further supporting personal income tax receipts.

Significant additional Government support for the economic recovery through tax relief for households and businesses has partially offset these revisions. Policy decisions are expected to reduce tax receipts by $22.6 billion over the four years to 2023-24. The largest of these decisions, Temporary full expensing extension, Temporary loss carry back extension and Retaining the low and middle income tax offset for the 2021-22 income year do not reduce tax receipts beyond the forward estimates.

After accounting for policy decisions, compared to the 2020-21 Budget, total tax receipts have been revised up in each year of the forward estimates and by a total of $84.5 billion (or 4.8 per cent) over the four years to 2023-24.

In 2020-21, tax receipts as a share of GDP are expected to be 22.3 per cent, higher than the 2020-21 Budget estimate of 21.8 per cent. Tax receipts as a share of GDP are expected to be 21.9 per cent in 2024-25, the final year of the forward estimates.

Notwithstanding the improved outlook, expected tax receipts remain well below the levels predicted prior to the onset of the COVID-19 pandemic. In addition, the outlook for tax receipts remains more uncertain than usual given a number of factors, such as the potential build-up of tax losses, that may weigh on future tax collections.


Contents

Overview ..................................................................................................... 129 Tax receipts during the recovery ................................................................................. 129 Tax outlook .................................................................................................................. 133

Variations in receipts estimates ................................................................ 137 Taxation receipts estimates ........................................................................................ 137 Non-taxation receipts .................................................................................................. 145

Variations in revenue estimates ................................................................ 149

Appendix A: Tax Benchmarks and Variations Statement ........................ 152


Statement 5: Revenue

Overview

The outlook for the Australian economy has strengthened. The faster-than-expected

recovery coupled with higher commodity prices has translated into significantly higher

receipts in 2020-21 than expected at the 2020-21 Budget. More generally, the improved

economic outlook has resulted in upward revisions to receipts across the entire forward

estimates period.

Policy decisions since the 2020-21 MYEFO provide substantial additional tax relief for

businesses and households to support the recovery. This extends and builds on tax

support announced in the 2020-21 Budget.

After accounting for new policy decisions, total tax receipts are forecast to grow by

6.4 per cent in 2020-21, and by 3.4 per cent on average over the four years to 2023-24

(Table 5.1).

Table 5.1: Australian Government general government receipts Actual Estimates

2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 $b $b $b $b $b $b

Total taxation receipts ($b) 431.8 459.5 445.6 455.3 493.1 525.4

Growth on previous year (%) -3.7

6.4 -3.0 2.2 8.3 6.5

Per cent of GDP 21.7

22.3 20.9 20.9 21.6 21.9

Tax receipts excluding GST ($b) 371.5

389.7 373.7 380.1 414.5 443.0


4.9 -4.1 1.7 9.1 6.9

Per cent of GDP 18.7

18.9 17.5 17.5 18.2 18.5

Non-taxation receipts ($b) 37.6

40.4 36.5 38.7 39.7 46.6

Growth on previous year (%) 2.5

7.3 -9.7 6.1 2.8 17.3

Per cent of GDP 1.9

2.0 1.7 1.8 1.7 1.9

Total receipts ($b) 469.4

499.8 482.1 494.0 532.9 572.0


6.5 -3.6 2.5 7.9 7.3

Per cent of GDP 23.6 24.3 22.6 22.7 23.4 23.9

Tax receipts during the recovery

The COVID-19 pandemic has had a significant impact on the Australian economy. The spread of the virus, and public health containment measures introduced, forced many businesses to hibernate. Unemployment increased, and discretionary household consumption declined due to the containment measures. This led to a steep deterioration in the outlook for tax receipts, across all heads of revenue. In the 2020-21 Budget, the forecast for tax receipts in 2020-21 was revised down $55.2 billion or 11.5 per cent relative to the forecast in the 2019-20 MYEFO.

| Budget Paper No.1

Page 130 | Statement 5: Revenue

However, an effective public health response coupled with unprecedented levels of

Government support allowed the economy to reopen and recover more quickly than

expected. Support through the tax system outlined in the 2020-21 Budget has started to

take effect. This includes the impact of tax relief provided by the bring-forward of the

Personal Income Tax Plan which has been flowing to households since November 2020

(see Box 5.1).

The Government’s support for business investment has also begun to have an

impact ⎯ in the December quarter, investment in new machinery and equipment

increased at the fastest quarterly rate in almost seven years. This has supported

economic growth. Nominal GDP is now expected to grow by 3¾ per cent in 2020-21,

compared with a decline of 1¾ per cent forecast at the 2020-21 Budget.

Box 5.1: Tax relief from the 2020-21 Budget flowing to individuals

In the 2020-21 Budget the Government brought forward the tax cuts from Stage 2 of the Personal Income Tax Plan by two years, backdating them to 1 July 2020. The bring-forward aimed to leverage the tax system to immediately boost household disposable income and support the economic recovery.

The chart below shows the tax relief this measure is estimated to have provided to individuals each month to the end of April 2021. In total, the tax cuts are estimated to have provided around $5.2 billion in tax relief so far, through reduced income tax withholding and instalment amounts. This is on top of the 2019-20 low and middle income tax offset (LMITO) which has seen around $6.8 billion flow to households since 1 July 2020.

Most of the tax cuts are delivered through reduced income tax withholding — that is, employers reducing the amount they hold back from individuals’ pay packets. Employers adjust these amounts in line with the Australian Taxation Office’s (ATO) withholding schedules, which were updated on 12 October 2020 to reflect the new tax thresholds. It is estimated that these changes started to materially increase individuals’ take-home pay from November 2020, providing economic stimulus within six weeks of the Budget announcement.

The increase in tax relief flowing to individuals from February reflects tax relief for individuals who pay income tax in instalments (‘other individuals’), with payments for the December and March quarters due to the ATO in the months of March and April respectively.

Budget Paper No.1 |


Box 5.1: Tax relief from the 2020-21 Budget flowing to individuals (continued)

Chart 5.1: Estimated monthly tax relief to date from the Personal Income Tax Plan Stage 2 bring-forward

0.0

0.2

0.4

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0.8

1.0

1.2

1.4

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21

$b$b

Income tax withholding

Other individuals

Note: This chart combines Treasury costing figures with historical monthly collections data and

2020-21 instalment due dates to estimate monthly tax relief. Source: ATO and Treasury.

In the 2020-21 Budget and 2021-22 Budget the Government also announced an additional benefit to taxpayers through retaining the LMITO for the 2020-21 and 2021-22 income years. The LMITO for the 2020-21 income year is expected to benefit around 10 million taxpayers from 1 July 2021, following lodgement of tax returns for the year. In addition, any excess tax paid by individuals prior to the withholding schedule updates in October 2020 will be refunded, providing an additional boost to household disposable income. This is likely to provide continued incentives for early lodgement of tax returns, which was observed in 2019-20 and 2020-21 following the introduction of the LMITO.

As a result of the faster-than-expected recovery, tax receipts have been well above the levels expected both in the 2020-21 Budget and the upgraded estimates in the 2020-21 MYEFO (Chart 5.2). GST rebounded quickly as public health containment measures were lifted, increases in iron ore prices resulted in strong company tax instalments and increases in employment in recent months have resulted in stronger personal income tax receipts.

| Budget Paper No.1


In total, 2020-21 taxation receipts at the end of March were $15.7 billion above the

2020-21 MYEFO forecast (Chart 5.2). Although some of this strength relates to one-off

factors, such as stronger-than-expected on-assessment payments from 2019-20 tax

returns and faster than expected recovery of outstanding tax liabilities, much of it

reflects the improved outlook, particularly for the labour market, that is expected to

continue through the remainder of the current year and over the forward estimates.

Chart 5.2: 2020-21 tax collections variations against forecasts

-5

0

5

10

15

20

25

30

35

-5

0

5

10

15

20

25

30

35

Sep Oct Nov Dec Jan Feb Mar Apr May Jun

$b$b

Difference from 2020-21

MYEFO Profile

Difference from 2020-21 Budget

Profile

Forecasts

Source: Department of Finance.

Including policy decisions, forecast tax receipts in 2020-21 have been revised up by $26.0 billion since the 2020-21 MYEFO and $34.8 billion since the 2020-21 Budget. The forecast is now 8.2 per cent higher than in the 2020-21 Budget. This upgrade is broad-based and observed across almost all heads of revenue, with the largest upgrades in individuals and other withholding taxes, company tax, and goods and services tax (GST).

Notably, GST receipts for 2020-21 are now forecast to be $2.0 billion higher than expected prior to the COVID-19 pandemic, driven by the faster-than-expected recovery in payments of GST liabilities as well as strength in dwelling investment. For more information on the recovery in GST receipts, see Box 5.3.

Budget Paper No.1 |


Chart 5.3: Revisions to 2020-21 tax receipts forecasts since the 2019-20 MYEFO

-60

-40

-20

0

20

40

-60

-40

-20

0

20

40

Personal incometax

Companies GST All other taxationreceipts

All taxationreceipts

$b$b

2020-21 Budget

2020-21 MYEFO

2021-22 Budget

Total since 2019-20 MYEFO

Source: Treasury.

Notwithstanding the faster-than-expected recovery and material upgrades, the forecast

for total tax receipts in 2020-21 still remains 4.2 per cent below the level forecast in the

2019-20 MYEFO, prior to the onset of the COVID-19 pandemic. While this reflects the

economic disruption caused by the pandemic, it is also partially a result of the significant

tax relief provided by the Government.

Tax outlook

On the back of the faster-than-expected recovery, the outlook for the Australian

economy has strengthened. This translates into an improved outlook for tax receipts,

which, relative to the 2020-21 Budget, are forecast to be $84.5 billion (4.8 per cent) higher

over the four years to 2023-24.

| Budget Paper No.1


Chart 5.4: The outlook for tax receipts at Budget updates

350

400

450

500

550

350

400

450

500

550

2018-19 2019-20 2020-21 2021-22 2022-23

$b$b

2019-20 MYEFO

2020-21 Budget

2020-21 MYEFO

2021-22 Budget

Source: Treasury.

The outlook for personal income tax receipts reflects the improved outlook for the labour

market more broadly. Compensation of employees is expected to be stronger, supported

by the recovery in employment to date, and higher expected wages growth later in the

forward estimates. Dividends and unincorporated business income are also forecast to

be stronger across the forward estimates. Relative to the 2020-21 Budget, individuals and

other withholding taxes have been revised up $34.4 billion over the four years to

2023-24.

Upgrades to the forecast for resources sector profits, largely due to ongoing elevated

iron ore prices, are supporting an improved outlook for company profits. Since the

2020-21 Budget, company tax forecasts have been revised up by $11.8 billion over the

four years to 2023-24.

Upgrades to the outlook for household consumption and dwelling investment, and a

faster-than-expected recovery in payments of outstanding GST liabilities have resulted

in GST receipts being revised up by $25.8 billion over the four years to 2023-24. The

outlook for household consumption combined with increases in forecast inflation is

driving upwards revisions to forecasts for excise and customs duties, which have been

revised up $2.9 billion over the four years to 2023-24.

The improved labour market outlook, along with a faster-than-expected recovery in

asset prices, one-off foreign exchange gains and strong reported incomes in the 2020-21

year, is also contributing to an improved outlook for superannuation taxes, which are

forecast to be $8.8 billion higher over the four years to 2023-24.

Budget Paper No.1 |


However, forecast tax receipts still remain well below the levels predicted prior to the

onset of the COVID-19 pandemic. A slower-growing population as a result of reduced

net overseas migration reduced the expected tax base. While employment, prices and

wages are all recovering more quickly than expected at the 2020-21 Budget, the levels

are still expected to remain lower than projections at the 2019-20 MYEFO for each year

to 2024-25.

Policy decisions in this Budget build on the economic support announced in the

2020-21 Budget and provide significant additional tax relief to households and

businesses. Policy decisions taken since the 2020-21 Budget provide $22.6 billion in

additional tax relief over the four years to 2023-24. However, this support is designed to

be temporary and targeted, with little impact beyond 2024-25 (Box 5.2). For more details

on policy decisions, see Budget Statement 1 and Budget Paper No. 2.

Considerable uncertainty remains around the outlook for tax receipts as they are

inextricably tied to the outlook for economic activity. Additionally, there are

uncertainties about the extent to which taxpayers may have accrued losses during the

pandemic, and the extent to which the carry forward of losses may weigh on future tax

collections.

| Budget Paper No.1


Box 5.2: Temporary and targeted support through the tax system

In the 2020-21 Budget, the Government provided significant tax relief to businesses

and households to support the economic recovery. The largest of these were

bringing forward the Government’s legislated Personal Income Tax Plan and

retaining the low and middle income tax offset to increase household disposable

incomes, as well as temporary loss carry back and temporary full expensing to

support business cash flow, investment and job creation. This Budget extends the

business investment measures and provides further tax relief for households by

retaining the low and middle income tax offset for 2021-22. In total, policy decisions

taken since the 2019-20 MYEFO are expected to reduce tax receipts by $79.1 billion

across the four years to 2023-24.

These tax initiatives have been carefully calibrated to boost confidence and

investment, supporting the economic recovery in the near-term while not

structurally impacting the longer term fiscal position (Chart 5.5). In aggregate, policy

decisions since the 2019-20 MYEFO are expected to increase tax receipts at the start

of the medium term, as the tax incentive measures are temporary and largely bring

forward tax deductions or the utilisation of losses from future years.

Chart 5.5: Tax receipts as a share of GDP, with and without policy announced since 2019-20 MYEFO

20.5

21.0

21.5

22.0

22.5

23.0

23.5

20.5

21.0

21.5

22.0

22.5

23.0

23.5

2015-16 2017-18 2019-20 2021-22 2023-24 2025-26 2027-28 2029-30 2031-32

% of GDP% of GDP

Budget 2021-22

Budget 2021-22 (w ithout policy decisions since

2019-20 MYEFO)

Medium-term projectionsForw ard estimates

Source: Treasury.

Budget Paper No.1 |


Variations in receipts estimates

Since the 2020-21 Budget, total receipts have been revised up by $36.1 billion in 2020-21

and $84.0 billion over the four years to 2023-24. Table 5.2 reconciles the 2021-22 Budget

estimates of total receipts with the 2020-21 Budget and 2020-21 MYEFO.

Table 5.2: Reconciliation of Australian Government general government receipts estimates from the 2020-21 Budget(a) Estimates

2020-21 2021-22 2022-23 2023-24 2024-25 Total(b)

$m $m $m $m $m $m

Receipts at 2020-21 Budget 463,764 451,918 482,647 526,363 * *

Changes from 2020-21 Budget

to 2020-21 MYEFO

Effect of policy decisions -105 -430 -649 -607 * *

Effect of parameter and other variations 9,474 7,010 5,059 518 * *

Total variations 9,369 6,580 4,410 -89 * *

Receipts at 2020-21 MYEFO 473,133 458,497 487,057 526,274 * *

Changes from 2020-21 MYEFO

to 2021-22 Budget

Effect of policy decisions 38 14 -7,357 -14,392 -5,890 -27,625

Effect of parameter and other variations 26,660 23,541 14,300 20,972 24,615 83,428

Total variations 26,698 23,555 6,943 6,581 18,724 55,803

Receipts at 2021-22 Budget 499,831 482,053 494,000 532,855 571,969 2,080,877

* Data is not available. (a) Includes expected Future Funds earnings. (b) Total is equal to the sum of amounts from 2021-22 to 2024-25.

Since the 2020-21 Budget, parameter and other variations have increased total receipts

by $36.1 billion in 2020-21 and $107.5 billion across the four years to 2023-24. Policy

decisions reduce receipts by $23.5 billion over the four years to 2023-24 compared with

the 2020-21 Budget.

The upgrade to the forecasts of total receipts is predominantly driven by the upgrades

to the forecasts of taxation receipts.

Taxation receipts estimates

Relative to the 2020-21 Budget, forecasts of total tax receipts have been revised up by

$34.8 billion in 2020-21 and by $84.5 billion across the four years to 2023-24. These

upgrades are broad-based, with the largest upward revisions to total individuals and

other withholding taxes and GST.

Table 5.3 reconciles the 2021-22 Budget estimates of tax receipts with the 2020-21 Budget

and 2020-21 MYEFO.

| Budget Paper No.1


Table 5.3: Reconciliation of Australian Government general government taxation receipts estimates from the 2020-21 Budget Estimates

2020-21 2021-22 2022-23 2023-24 2024-25 Total(a)

$m $m $m $m $m $m

Tax receipts at 2020-21 Budget 424,643 413,799 442,912 487,645 * *


to 2020-21 MYEFO

Effect of policy decisions -4 -5 -32 8 * *

Effect of parameter and other variations 8,861 6,123 2,303 -1,261 * *

Total variations 8,857 6,118 2,271 -1,253 * *

Tax receipts at 2020-21 MYEFO 433,500 419,917 445,182 486,392 * *


to 2021-22 Budget

Effect of policy decisions 0 -243 -7,638 -14,688 -6,204 -28,773

Effect of parameter and other variations 25,970 25,925 17,784 21,403 21,259 86,370

Total variations 25,970 25,682 10,145 6,715 15,055 57,597

Tax receipts at 2021-22 Budget 459,470 445,599 455,328 493,106 525,353 1,919,386

* Data is not available. (a) Total is equal to the sum of amounts from 2021-22 to 2024-25.

Since the 2020-21 Budget, parameter and other variations are expected to increase tax

receipts by $34.8 billion in 2020-21 and $107.1 billion over the four years to 2023-24.

Policy decisions reduce tax receipts by $22.6 billion over the four years to 2023-24

compared with the 2020-21 Budget.

Chart 5.6: Revisions to total tax receipts since the 2020-21 Budget

Chart 5.7: Parameter and other variations to total tax receipts since

the 2020-21 Budget

-20

-10

0

10

20

30

40

-20

-10

0

10

20

30

40

2020-21 2021-22 2022-23 2023-24

$b$b


Policy decisions

Total variations

-20

-10

0

10

20

30

40

-20

-10

0

10

20

30

40

2020-21 2021-22 2022-23 2023-24

$b$b

IndividualsCompanies

GST

OtherTotal

Source: Treasury. Source: Treasury.

Budget Paper No.1 |


These upgrades reflect broad-based strength across almost all heads of revenue, driven

by the faster-than-expected recovery from the COVID-19 pandemic and an improved

economic outlook. Growth in the key economic parameters that influence tax receipts is

shown in Table 5.4.

Table 5.4: Key economic parameters for tax receipts(a) Outcomes Forecasts

2019-20 2020-21 2021-22 2022-23 2023-24 2024-25

Nominal gross domestic product 1.7 3 3/4 3 1/2 2 4 3/4 5

Change since 2020-21 MYEFO 2 3/4 2 1/4 -1 3/4 0 na

Change since 2020-21 Budget 5 1/2 1/4 -2 1/2 - 1/4 na

Compensation of employees(b) 3.5 2 1/4 3 3 3/4 4 4 3/4

Change since 2020-21 MYEFO 2 1/4 1 1/2 1/4 - 1/2 na

Change since 2020-21 Budget 1 1/4 2 1/4 - 1/4 - 1/4 na

Corporate gross operating surplus(c) 7.9 9 3/4 -6 3/4 -3 1/2 5 5 1/4

Change since 2020-21 MYEFO 5 4 1/4 -5 1/2 - 1/4 na

Change since 2020-21 Budget 10 1 3/4 -8 1/2 - 1/4 na

Non-farm gross mixed income 7.4 14 3/4 -7 1/4 3 1/4 7 7 1/4

Change since 2020-21 MYEFO -2 1/4 3 1/4 1 1/2 1 1/2 na

Change since 2020-21 Budget 3 3/4 1 1/2 1 1/4 1 1/4 na

Property income(d) -3.3 -5 1/4 13 1/4 4 1/4 4 3/4 5

Change since 2020-21 MYEFO -1 1/2 6 1/2 1 1/2 0 na

Change since 2020-21 Budget 9 - 1/4 3/4 0 na

Consumption subject to GST -4.2 3/4 9 1/4 7 6 5 1/4

Change since 2020-21 MYEFO 2 1 0 3/4 na

Change since 2020-21 Budget 5 1/2 -1 -1 -1 na

(a) Current prices, per cent change on previous year. Changes since the 2020-21 MYEFO and 2020-21 Budget are percentage points.

(b) Compensation of employees measures total remuneration earned by employees. (c) Corporate gross operating surplus is an Australian System of National Accounts measure of company

profits, gross of depreciation. (d) Property income measures income derived from rent, dividends and interest. na: not applicable Source: ABS Australian National Accounts: National Income, Expenditure and Product, and Treasury.

The changes in the outlook for individual heads of revenue are explained in more detail

below.

Individuals and other withholding taxation receipts

Since the 2020-21 Budget, total individuals and other withholding taxation receipts have

been revised up $10.6 billion in 2020-21 and $34.4 billion over the four years to 2023-24.

Individuals and other withholding taxation receipts are expected to increase by

2.7 per cent in 2020-21 and decline by 3.8 per cent in 2021-22. Growth over the forward

estimates is reduced by the further extension of LMITO in this Budget as well as Stage 3

of the Personal Income Tax Plan commencing 1 July 2024.

| Budget Paper No.1


Excluding new policy decisions, individuals and other withholding taxation receipts

have been revised up $10.6 billion in 2020-21 and $44.3 billion over the four years

to 2023-24. This revision reflects the faster-than-expected recovery in the labour market

in 2020-21 supporting higher employment, and the persistent strength in that labour

market recovery resulting in both higher wages and employment in subsequent years.

The outlook for income from unincorporated businesses, dividends and capital gains

has also improved.

New tax policy measures announced since the 2020-21 Budget are expected to reduce

individuals and other withholding tax receipts by $9.9 billion over the four years to

2023-24. This includes $7.8 billion from retaining the LMITO for the 2021-22 income

year, which will benefit around 10.2 million taxpayers. The retention of the LMITO is on

top of the $25.1 billion in tax cuts flowing to households in 2021-22 that has been

announced in previous Budgets.

Fringe benefits tax

Since the 2020-21 Budget, fringe benefits tax receipts have been revised up $100 million

in 2020-21 and $630 million over the four years to 2023-24, reflecting higher

compensation of employees. Fringe benefits tax receipts are forecast to grow by

1.3 per cent in 2020-21 and 1.5 per cent in 2021-22.

Company tax

Since the 2020-21 Budget, company tax receipts are expected to be $8.8 billion higher in

2020-21 and $11.8 billion higher over the four years to 2023-24. Company tax receipts are

forecast to rise by 10.0 per cent in 2020-21 and decline by 11.8 per cent in 2021-22.

Compared with the 2020-21 Budget, parameter and other variations account for

$8.8 billion of the upgrade in the forecast for company tax receipts in 2020-21 and

$25.1 billion of the upgrade over the four years to 2023-24. Company tax receipts have

been revised up significantly in 2020-21 and 2021-22 largely as a result of elevated iron

ore prices increasing profits in the resources sector, but this strength is expected to taper

off in later years in line with the assumed decline in iron ore prices. For more information

on the sensitivity of company tax receipts to iron ore prices, see Budget Statement 2,

Box 2.5: Sensitivity analysis of the iron ore spot price. Upgrades to profits in the

non-mining, non-finance sector support the company tax forecast in the latter years of

the forward estimates.

Budget Paper No.1 |


New tax policy measures announced since the 2020-21 Budget are expected to reduce

company tax receipts by $13.3 billion over the four years to 2023-24. This includes the

measures to extend temporary full expensing and temporary loss carry back by one year.

There is evidence that businesses are capitalising on the Government's tax incentives

with investment in new machinery and equipment increasing at the fastest quarterly

rate in almost seven years in the December quarter 2020. Further, the outlook for the

business sector has strengthened considerably and the latest December 2020 quarter ABS

capital expenditure survey data suggest that firms’ capital investment intentions for

2020-21 have strengthened, while early indications for capital spending in 2021-22 are

also positive.

There continues to be considerable uncertainty around the forecasts for company tax

receipts. This is partly due to substantial uncertainty around the outlook for the

economy, as well as uncertainty around the extent to which companies will use losses

incurred during the COVID-19 pandemic to offset future profits. Details on the impact

of changes in economic assumptions on tax receipts are discussed in Budget Statement 8.

Superannuation fund taxes

Since the 2020-21 Budget, superannuation fund tax receipts have been revised up

$3.5 billion in 2020-21 and $8.8 billion across the four years to 2023-24. Tax from

superannuation funds is expected to grow strongly, by 86.2 per cent in 2020-21 and by

30.8 per cent in 2021-22.

This reflects strong foreign exchange gains increasing tax liabilities for 2020-21, with

improved labour market conditions and a further recovery in asset prices supporting

receipts across the forward estimates.

Petroleum resource rent tax (PRRT)

Since the 2020-21 Budget, PRRT receipts have been revised down $100 million in

2020-21, but up by $200 million over the four years to 2023-24, consistent with recent

higher oil prices. PRRT receipts are forecast to decline by 24.6 per cent in 2020-21 but

grow by 25.0 per cent in 2021-22.

Goods and services tax (GST)

Since the 2020-21 Budget, GST receipts have been revised up $9.8 billion in 2020-21 (refer

to Box 5.3) and $25.8 billion across the four years to 2023-24. Receipts from GST are

forecast to increase by 15.8 per cent in 2020-21 and 3.1 per cent in 2021-22.

Increases in GST receipts largely reflect underlying strength in collections consistent

with stronger-than-expected consumption subject to GST and dwelling investment, and

a faster-than-expected recovery in payments of outstanding GST liabilities. Upgrades in

the outer years reflect upwards revisions to consumption subject to GST.

| Budget Paper No.1


Box 5.3: GST - downturn and recovery

The COVID-19 pandemic has had profound impacts on household consumption

patterns, resulting in unprecedented volatility in GST receipts. In the

June quarter of 2020, the spread of the virus and the related health restrictions led

to a 7.5 per cent contraction in nominal GDP and a 12.7 per cent contraction in

nominal consumption. As COVID-related restrictions eased through the

latter half of 2020, consumption and GST receipts recovered sharply.

Chart 5.8 shows through-the-year growth in net GST revenue reported on

Business Activity Statements (BAS) by selected industries and overall. In the

June quarter of 2020, falls in net GST were particularly pronounced in the

accommodation and food services industries, consistent with them being heavily

affected by the COVID-related health restrictions. In contrast, growth in retail

trade remained strong and has contributed significantly to the growth in net GST

revenue in the September and December quarters of 2020-21.

During the downturn in the March and June quarters of 2020, GST receipts fell

more as a share of consumption than the GST liabilities being reported to the ATO

(Chart 5.9). This reflected increases in unpaid GST liabilities in the latter half of

2019-20 as well as administrative support provided by the ATO. The payment of

ATO granted deferrals and repayment of outstanding liabilities has supported the

recovery of GST receipts in 2020-21. For further detail on administrative support,

see 2020-21 Budget, Budget Paper 1, Statement 5, Box 1.

Budget Paper No.1 |


Excise and customs duty

Since the 2020-21 Budget, total excise and customs duty receipts have been revised up

$1.1 billion in 2020-21 and $2.9 billion over the four years to 2023-24. Excise and customs

duties are forecast to decline by 0.8 per cent in 2020-21 but grow by 1.1 per cent

in 2021-22.

Compared with the 2020-21 Budget, parameter and other variations account for

$1.1 billion of the upgrade in the forecast for excise and customs duty receipts in 2020-21

and $3.1 billion of the upgrade over the four years to 2023-24. This reflects

higher-than-expected fuel and alcohol excise collections, as well as upgrades to the

outlook for fuel and alcohol consumption and an increase to forecasts of the Consumer

Price Index across the forward estimates. This is partially offset by a downgrade to the

outlook for tobacco consumption.

Box 5.3: GST - downturn and recovery (continued)

Chart 5.8: Growth in GST revenue, selected industries

Chart 5.9: GST receipts and liabilities raised as a share of consumption

-80

-60

-40

-20

0

20

40

-80

-60

-40

-20

0

20

40

Jun-19 Dec-19 Jun-20 Dec-20

%, tty%, tty

Accommodation and food

services

Retail trade

All industries

Note: GST revenue refers to net GST reported on the BAS. This is the total GST collected on business sales, less the GST paid on inputs. It does not include GST paid by businesses that lodge GST statements annually, or GST paid on imported goods at the border.

Source: ATO; Treasury.

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

Jun-19 Dec-19 Jun-20 Dec-20

%%

GST liabilities raised

GST receipts


GST receipts


GST receipts


GST receipts

Note: GST receipts includes all GST collected (net of refunds) during the quarter. GST liabilities are net liabilities raised during the quarter.

Source: ATO; ABS Australian National Accounts: National Income, Expenditure and Product and Treasury.

| Budget Paper No.1


Policy decisions are expected to reduce excise and customs duty receipts by $180 million

over the four years to 2023-24. This largely reflects the measure Aligning the excise refund

scheme for brewers and distillers with the producer rebate for wine producers, which provides

$165 million in additional support ($225 million to 2024-25) to eligible Australian

brewers and distillers.

The 2021-22 Budget estimates continue to include provisions for a number of free trade

agreements (FTAs) which have not been finalised and which impact the customs duty

heads of revenue:

• Australia-European Union Free Trade Agreement

• Australia-India Comprehensive Economic Cooperation Agreement

• Australia-United Kingdom Free Trade Agreement.

A number of other FTAs are currently under negotiation, but are not expected to have a

material impact on revenue over the forward estimates. A full list of FTAs currently

under negotiation is available on the Department of Foreign Affairs and Trade website.

Other sales taxes

Since the 2020-21 Budget, luxury car tax (LCT) receipts have been revised up

$260 million in 2020-21 and $480 million over the four years to 2023-24. LCT receipts are

forecast to increase by 40.3 per cent in 2020-21 but decrease by 15.0 per cent in 2021-22.

This is consistent with stronger-than-expected purchases of motor vehicles in the current

year, but the expectation is that this will moderate in the latter years of the forward

estimates.

Since the 2020-21 Budget, wine equalisation tax (WET) receipts have been revised up by

around $10 million in 2020-21, and $100 million over the four years to 2023-24. WET

receipts are forecast to grow by 9.5 per cent in 2020-21 but decline by 1.9 per cent

in 2021-22.

Other taxes

Other taxes encompass a range of sources of revenue, including the major bank levy and

agricultural levies. Those particularly impacted by the travel restrictions implemented

in response to the COVID-19 pandemic include visa application charges and passenger

movement charge.

Since the 2020-21 Budget, other taxes have been revised up by $786 million in 2020-21,

but revised down by $585 million over the four years to 2023-24. Other taxes are forecast

to decline by 17.7 per cent in 2020-21 and decline by 8.3 per cent in 2021-22.

Budget Paper No.1 |


Excluding new policy decisions, other taxes have been revised up by $0.8 billion in

2020-21, but revised down by $1.3 billion over the four years to 2023-24.

Non-taxation receipts

Since the 2020-21 Budget non-taxation receipts are expected to increase by $1.2 billion in

2020-21 and decrease by $0.5 billion over the four years to 2023-24.

Since the 2020-21 MYEFO, dividends from the Reserve Bank of Australia and receipts

from Australian Government Investment Funds have been revised down by $4.7 billion

over the four years to 2023-24 due to volatility of the financial markets and the impacts

of the COVID-19 pandemic on the global economy. Interest and loan fee repayments on

Higher Education Loan Program loans are lower by $0.5 billion over the four years to

2023-24.

The reduction in non-taxation receipts since the 2020-21 MYEFO has been partially offset

by higher than expected petroleum royalties of $0.8 billion over the four years to 2023-24.

| Budget Paper No.1


Table 5.5: Reconciliation of 2020-21 general government (cash) receipts Estimates Change on 2020-21 Budget

2020-21 Budget 2021-22 Budget $m $m $m %

Individuals and other withholding taxes

Gross income tax withholding 210,800 216,500 5,700 2.7

Gross other individuals 44,000 47,500 3,500 8.0

less: Refunds 37,400 36,000 -1,400 -3.7

Total individuals and other withholding tax 217,400 228,000 10,600 4.9

Fringe benefits tax 3,800 3,900 100 2.6

Company tax 84,500 93,300 8,800 10.4

Superannuation fund taxes 8,210 11,670 3,460 42.1

Petroleum resource rent tax 900 800 -100 -11.1

Income taxation receipts 314,810 337,670 22,860 7.3

Goods and services tax 59,981 69,782 9,801 16.3

Wine equalisation tax 1,040 1,050 10 1.0

Luxury car tax 540 800 260 48.1


Petrol 5,550 5,850 300 5.4

Diesel 11,930 12,530 600 5.0

Other fuel products 1,690 1,550 -140 -8.3

Tobacco 15,290 15,060 -230 -1.5

Beer 2,470 2,560 90 3.6

Spirits 2,670 3,070 400 15.0

Other alcoholic beverages(a) 1,050 1,270 220 21.0

Other customs duty

Textiles, clothing and footwear 170 170 0 0.0

Passenger motor vehicles 310 340 30 9.7

Other imports 1,050 1,180 130 12.4

less: Refunds and drawbacks 500 790 290 58.0

Total excise and customs duty 41,680 42,790 1,110 2.7

Major bank levy 1,650 1,650 0 0.0

Agricultural levies 481 509 28 5.8

Other taxes 4,461 5,219 758 17.0

Indirect taxation receipts 109,833 121,800 11,967 10.9

Taxation receipts 424,643 459,470 34,827 8.2

Sales of goods and services 16,538 16,381 -157 -1.0

Interest received 4,133 2,995 -1,139 -27.5

Dividends 6,837 8,493 1,655 24.2

Other non-taxation receipts 11,613 12,494 881 7.6

Non-taxation receipts 39,121 40,361 1,240 3.2

Total receipts 463,764 499,831 36,067 7.8

Memorandum:

Total excise 22,820 23,980 1,160 5.1

Total customs duty 18,860 18,810 -50 -0.3

Capital gains tax(b) 13,100 16,600 3,500 26.7

(a) ‘Other alcoholic beverages’ are those not exceeding 10 per cent by volume of alcohol (excluding beer, brandy and wine).

(b) ‘Capital gains tax’ is part of gross other individuals, company tax and superannuation fund taxes.

Budget Paper No.1 |


Table 5.6: Reconciliation of 2021-22 general government (cash) receipts Estimates Change on 2020-21 Budget





less: Refunds 42,700 42,300 -400 -0.9



Company tax 71,000 82,300 11,300 15.9


Petroleum resource rent tax 900 1,000 100 11.1

Income taxation receipts 296,490 321,920 25,430 8.6



Luxury car tax 540 680 140 25.9


Petrol 5,850 6,100 250 4.3

Diesel 12,440 13,140 700 5.6


Tobacco 15,150 14,750 -400 -2.6

Beer 2,380 2,600 220 9.2

Spirits 2,620 2,720 100 3.8


Other customs duty

Textiles, clothing and footwear 190 160 -30 -15.8

Passenger motor vehicles 340 310 -30 -8.8

Other imports 1,120 1,230 110 9.8


Total excise and customs duty 42,450 43,260 810 1.9

Major bank levy 1,700 1,650 -50 -2.9


Other taxes 5,521 4,613 -909 -16.5

Indirect taxation receipts 117,309 123,679 6,370 5.4

Taxation receipts 413,799 445,599 31,800 7.7

Sales of goods and services 17,418 17,364 -54 -0.3

Interest received 4,202 3,063 -1,140 -27.1

Dividends 6,687 5,829 -858 -12.8

Other non-taxation receipts 9,812 10,198 386 3.9

Non-taxation receipts 38,119 36,454 -1,665 -4.4

Total receipts 451,918 482,053 30,135 6.7

Memorandum:

Total excise 23,610 24,840 1,230 5.2





| Budget Paper No.1


Table 5.7: Australian Government general government (cash) receipts Actual Estimates

2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 $m $m $m $m $m $m

Individuals and other withholding

taxes

Gross income tax withholding 214,426 216,500 216,500 224,500 236,000 236,900

Gross other individuals 43,713 47,500 45,200 50,200 53,900 58,800

less: Refunds 36,219 36,000 42,300 38,100 33,100 33,900

Total individuals and other

withholding tax 221,920 228,000 219,400 236,600 256,800 261,800

Fringe benefits tax 3,850 3,900 3,960 4,160 4,330 4,500

Company tax 84,781 93,300 82,300 70,400 81,000 100,500

Superannuation fund taxes 6,267 11,670 15,260 14,510 15,260 16,210

Petroleum resource rent tax(a) 1,052 800 1,000 1,000 1,000 1,000

Income taxation receipts 317,870 337,670 321,920 326,670 358,390 384,010

Goods and services tax 60,263 69,782 71,941 75,231 78,570 82,400

Wine equalisation tax 959 1,050 1,030 1,060 1,090 1,140

Luxury car tax 570 800 680 610 610 640


Petrol 5,734 5,850 6,100 6,300 6,650 7,150

Diesel 12,046 12,530 13,140 13,740 14,340 15,390

Other fuel products 1,923 1,550 1,830 1,850 1,920 2,020

Tobacco 16,270 15,060 14,750 14,610 14,970 15,340

Beer 2,455 2,560 2,600 2,660 2,750 2,890

Spirits 2,648 3,070 2,720 2,800 2,900 3,030

Other alcoholic beverages(b) 1,059 1,270 1,070 1,100 1,140 1,200

Other customs duty

Textiles, clothing and footwear 169 170 160 110 90 100

Passenger motor vehicles 369 340 310 70 70 80

Other imports 1,142 1,180 1,230 780 780 850

less: Refunds and drawbacks 669 790 650 650 650 650

Total excise and customs duty 43,147 42,790 43,260 43,370 44,960 47,400

Major bank levy 1,612 1,650 1,650 1,700 1,750 1,850

Agricultural levies 469 509 505 522 536 540

Other taxes 6,885 5,219 4,613 6,165 7,199 7,373

Indirect taxation receipts 113,905 121,800 123,679 128,658 134,716 141,343

Taxation receipts 431,775 459,470 445,599 455,328 493,106 525,353

Sales of goods and services 15,490 16,381 17,364 17,848 18,908 19,996

Interest received 3,244 2,995 3,063 3,080 3,363 3,721

Dividends 7,007 8,493 5,829 7,451 7,077 7,460

Other non-taxation receipts 11,883 12,494 10,198 10,293 10,401 15,439

Non-taxation receipts 37,623 40,361 36,454 38,672 39,748 46,616

Total receipts 469,398 499,831 482,053 494,000 532,855 571,969

Memorandum:

Total excise 23,352 23,980 24,840 25,780 26,950 28,820

Total customs duty 19,795 18,810 18,420 17,590 18,010 18,580

Capital gains tax(c) 16,100 16,600 17,400 18,600 19,300 20,500

(a) This item includes an amount of MRRT receipts in 2019-20 which has not been separately disclosed owing to taxpayer confidentiality.

(b) ‘Other alcoholic beverages’ are those not exceeding 10 per cent by volume of alcohol (excluding beer, brandy and wine).

(c) ‘Capital gains tax’ is part of gross other individuals, company tax and superannuation fund taxes. The 2019-20 reported figure is an estimate.

Budget Paper No.1 |


Variations in revenue estimates

The revenue estimates are the accrual accounting equivalent of the cash-based receipts

estimates. Changes in revenue are generally driven by the same factors as receipts.

Revenues are usually higher than the cash equivalents because the amounts are

generally recognised when they are owed rather than when they are paid. The

differences between the accrual and cash amounts therefore generally reflect payment

timing differences. Table 5.8 provides a reconciliation of the 2021-22 Budget’s revenue

estimates with those at the 2020-21 Budget and 2020-21 MYEFO.

Table 5.8: Reconciliation of Australian Government general government revenue estimates from the 2020-21 Budget Estimates

2020-21 2021-22 2022-23 2023-24 2024-25 Total(b)

$m $m $m $m $m $m

Revenue at 2020-21 Budget 472,442 464,072 491,400 538,100 * *


to 2020-21 MYEFO

Effect of policy decisions(a) -72 -364 -590 -552 * *

Effect of parameter and other variations 9,766 8,843 4,056 980 * *

Total variations 9,694 8,479 3,466 427 * *

Revenue at 2020-21 MYEFO 482,136 472,551 494,866 538,527 * *


to 2021-22 Budget

Effect of policy decisions(a) 38 353 -7,352 -14,406 -6,240 -27,645

Effect of parameter and other variations 22,714 23,717 17,631 20,366 * *

Total variations 22,752 24,070 10,279 5,960 * *

Revenue at 2021-22 Budget 504,888 496,621 505,145 544,487 577,959 2,124,211

* Data is not available. (a) Excludes secondary impacts on public debt interest of policy decisions and offsets from the Contingency

Reserve for decisions taken. (b) Total is equal to the sum of amounts from 2021-22 to 2024-25.

Since the 2020-21 Budget, total revenue has been revised up by around $32.4 billion in

2020-21 and by $85.1 billion over the four years to 2023-24. Total revenue has been

revised up by $3.6 billion less than total receipts in 2020-21 due to downward revisions

in expected net tax receivable and downward revisions to expected write-offs including

gross income tax withholding, gross other individuals and GST. This reflects

administrative relief offered by the ATO during the COVID-19 pandemic. Thereafter,

revisions to revenue broadly reflect those made to receipts.

The changes in the individual heads of revenue accrual estimates relative to the

2020-21 Budget are shown in Tables 5.9 and 5.10, for 2020-21 and 2021-22 respectively.

For the five year accrual table, the accrual equivalent of Table 5.7, see

Budget Statement 10, Note 3.

| Budget Paper No.1


Additional revenue and receipts historical tables are available online and can be

accessed at www.budget.gov.au.

Table 5.9: Reconciliation of 2020-21 general government (accrual) revenue Estimates Change on 2020-21 Budget

2020-21 Budget 2021-22 Budget

$m $m $m %




less: Refunds 37,400 36,000 -1,400 -3.7



Company tax 86,200 94,300 8,100 9.4


Petroleum resource rent tax 870 840 -30 -3.4

Income taxation revenue 321,330 341,860 20,530 6.4



Luxury car tax 540 800 260 48.1


Petrol 5,550 5,850 300 5.4

Diesel 11,880 12,480 600 5.1


Tobacco 15,270 15,080 -190 -1.2

Beer 2,460 2,550 90 3.7

Spirits 2,670 3,070 400 15.0


Other customs duty

Textiles, clothing and footwear 170 170 0 0.0

Passenger motor vehicles 310 340 30 9.7

Other imports 1,050 1,180 130 12.4


Total excise and customs duty 41,600 42,760 1,160 2.8

Major bank levy 1,670 1,640 -30 -1.8


Other taxes 5,262 6,052 791 15.0

Indirect taxation revenue 113,583 123,911 10,329 9.1

Taxation revenue 434,913 465,771 30,859 7.1

Sales of goods and services 15,874 15,947 73 0.5

Interest 4,181 2,901 -1,281 -30.6

Dividends 6,419 8,038 1,619 25.2

Other non-taxation revenue 11,054 12,231 1,177 10.6

Non-taxation revenue 37,529 39,116 1,588 4.2

Total revenue 472,442 504,888 32,446 6.9

Memorandum:

Total excise 22,760 23,930 1,170 5.1





Budget Paper No.1 |


Table 5.10: Reconciliation of 2021-22 general government (accrual) revenue Estimates Change on 2020-21 Budget





less: Refunds 42,700 42,300 -400 -0.9



Company tax 73,000 84,200 11,200 15.3


Petroleum resource rent tax 900 1,050 150 16.7

Income taxation revenue 304,130 329,520 25,390 8.3



Luxury car tax 540 680 140 25.9


Petrol 5,850 6,100 250 4.3

Diesel 12,440 13,140 700 5.6


Tobacco 15,150 14,750 -400 -2.6

Beer 2,390 2,600 210 8.8

Spirits 2,620 2,720 100 3.8


Other customs duty

Textiles, clothing and footwear 190 160 -30 -15.8

Passenger motor vehicles 340 310 -30 -8.8

Other imports 1,120 1,230 110 9.8


Total excise and customs duty 42,470 43,260 790 1.9

Major bank levy 1,720 1,670 -50 -2.9


Other taxes 6,702 6,157 -544 -8.1

Indirect taxation revenue 120,667 127,452 6,785 5.6

Taxation revenue 424,797 456,972 32,175 7.6

Sales of goods and services 17,161 17,175 14 0.1

Interest 4,008 3,621 -387 -9.7

Dividends 7,454 7,265 -189 -2.5

Other non-taxation revenue 10,651 11,588 937 8.8

Non-taxation revenue 39,274 39,648 374 1.0

Total revenue 464,072 496,621 32,549 7.0

Memorandum:

Total excise 23,630 24,840 1,210 5.1





| Budget Paper No.1


Appendix A: Tax Benchmarks and Variations Statement

This appendix contains an overview of Australian Government tax benchmark variations, as required by Section 12 of the Charter of Budget Honesty Act 1998 (CBHA).

The information in Table 5.11 is derived from the 2020 Tax Benchmarks Variations Statement, based on economic parameters as at the publication of the 2020-21 MYEFO. It does not include the impact of policy decisions, or changes in the economic outlook since then on benchmark variations. Further information on benchmarks and variations from them will be available in future Tax Benchmark and Variations reports.

Tax benchmarks represent a standard taxation treatment that applies to similar

taxpayers or types of activities. Policy approaches can apply a taxation treatment different from a standard approach and the resulting variations can give rise to positive or negative variations. The choice of benchmark unavoidably involves judgment and may therefore be contentious in some cases.

Benchmark variation estimates should be interpreted with caution as they do not indicate the revenue gain or loss to the Budget if they were to be abolished by a change

of policy. In addition, the characterisation of a provision of the tax law that gives rise to a benchmark variation does not indicate a view on how an activity or class of taxpayer ought to be taxed.

Consistent with most OECD countries, estimates of a benchmark variation reflect the extent to which a variation is utilised, similar to Budget estimates of outlays on demand-driven expenditure programs. This is known as the ‘revenue forgone’ approach

which, in practice, involves estimating the difference in revenue between the actual and benchmark tax treatments but, importantly, assuming taxpayer behaviour is the same in each circumstance. Revenue forgone estimates therefore do not indicate the revenue gain to the Budget if specific benchmark variations were abolished through policy change, as there may be significant changes in taxpayer behaviour were the variations removed.

Care needs to be taken when comparing benchmark variations with direct expenditures as they may measure different things. In addition, estimates from different editions of previously released Tax Benchmarks and Variations Statements are generally not comparable, because of changes or modifications to ⎯ for example ⎯ benchmarks, individual benchmark variations, data used or modelling methodology.

The CBHA also requires the publication of an annual report. The 2020 Tax Benchmarks

and Variations Statement was published in January 2021 and provides a detailed description of Australian Government benchmarks and benchmark variations and, where possible, the estimated value, or order of magnitude, of each benchmark variation.


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Statement 6: Expenses and Net Capital Investment | Page 155

Statement 6: Expenses and Net Capital Investment

Statement 6 presents estimates of the Australian Government general government sector expenses and net capital investment, allocated according to the functions of government, on a fiscal balance basis. The functions are based on an international standard classification of functions of government that is incorporated into the Government Finance Statistics (GFS) reporting framework. Unless otherwise specified, tables in Statement 6 are presented in nominal terms.

Explanatory text in Statement 6 is presented in real terms (that is, excluding the impact of inflation) to focus on trends in estimated expenses and their underlying drivers. Consistent with this emphasis, much of Statement 6 explains year on year changes across the forward estimates period.

With the conclusion of most temporary measures responding to the COVID-19 pandemic, expenses are reducing from the peak of $659 billion in 2020-21 to $589 billion in 2021-22 (see Chart 6.1 below). The 2021-22 Budget includes measures that continue targeted support to respond to the COVID-19 economic environment for individuals, business, sectors and regions in need. In this Budget the Australian Government is also investing to guarantee the essential services that Australians rely on, and to ensure quality care for vulnerable people, including in aged care, people with disability and mental health support.

Chart 6.1: Australian Government expenditure

450

500

550

600

650

700

450

500

550

600

650

700

2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25

$b$b

Estimates

Page 156 | Statement 6: Expenses and Net Capital Investment

The main trends in functional expenditure are:

• an estimated decline in government expenditure from 2020-21 to 2021-22 reflecting the conclusion of many of the temporary measures that were part of the Government’s immediate response to the COVID-19 pandemic

• in real terms, the strongest growth across the budget year and forward estimates is expected to occur in the other purposes and defence functions

• in 2021-22 and across the forward estimates the social security and welfare, health, defence and education functions account for around two thirds of total expenses, with social security and welfare accounting for slightly more than one third of total expenses

• net capital investment from 2020-21 to 2024-25 largely reflects a significant investment in defence capital projects.


Contents

Statement 6: Expenses and Net Capital Investment ................................ 159

Overview ..................................................................................................... 159

Estimated expenses by function ............................................................... 161 Program expenses ...................................................................................................... 164

General government sector expenses ...................................................... 165 General public services ............................................................................................... 165 Defence ....................................................................................................................... 167 Public order and safety ............................................................................................... 168 Education .................................................................................................................... 169 Health .......................................................................................................................... 171 Social security and welfare ......................................................................................... 174 Housing and community amenities ............................................................................. 179 Recreation and culture ................................................................................................ 180 Fuel and energy .......................................................................................................... 182 Agriculture, forestry and fishing ................................................................................... 183 Mining, manufacturing and construction ..................................................................... 184 Transport and communication ..................................................................................... 186 Other economic affairs ................................................................................................ 188 Other purposes ............................................................................................................ 191

General government net capital investment ............................................. 194 Reconciliation of net capital investment since the 2020-21 Budget ............................ 194 Net capital investment estimates by function .............................................................. 196

Appendix A: Expense by Function and Sub-Function ............................. 198


Statement 6: Expenses and Net Capital Investment

Overview

Australian Government general government sector (GGS) accrual expenses are expected

to increase by 12.3 per cent in real terms in 2020-21, which is primarily driven by the

Government’s temporary and targeted response to the impact of the COVID-19

pandemic on Australia’s health system, the economy, and employment levels. The

decrease by 12.3 per cent in real terms in 2021-22 reflects the cessation of many elements

of the temporary and targeted Government response to the COVID-19 pandemic, and

improved economic and labour market conditions. Following this decrease, total

expenses are estimated to gradually increase from 2023-24. As a percentage of GDP, total

expenses are expected to reach 32.0 per cent in 2020-21, reflecting both the Government’s

economic response and an expected slowdown in GDP growth due to the economic

impact of the COVID-19 pandemic. Expenses are estimated to decline as a share of GDP

over the forward estimates period, reaching 26.4 cent of GDP in 2024-25.

Table 6.1.1 Estimates of general government sector expenses 2020-21 2020-21

Revised

Estimates Budget MYEFO

2020-21 2020-21 2020-21 2021-22 2022-23 2023-24 2024-25

Total expenses ($b) 670.3 667.3 659.4 589.3 595.4 614.7 633.7

Real growth on

previous year (%)(a) 15.3 14.3 12.3 -12.3 -1.2 0.8 0.6

Per cent of GDP 34.4 33.3 32.0 27.6 27.4 27.0 26.4

(a) Real growth is calculated using the Consumer Price Index.

As set out in Statement 3: Fiscal Strategy and Outlook of Budget Paper No. 1, the

Government also reports spending on an underlying cash basis. In cash terms,

Government spending is estimated to increase by 18.4 per cent in real terms in 2020-21,

reflecting the Government’s significant response to the COVID-19 pandemic, and then

to decline by 12.6 per cent in real terms in 2021-22, due to the cessation of many elements

of the Government’s temporary and targeted response to the impact of the COVID-19

pandemic and improved economic and labour market conditions. Growth in payments

is then estimated to gradually increase from 2023-24. As a percentage of GDP, total

payments are expected to reach 32.1 per cent in 2020-21 and then to gradually decrease

to 26.2 per cent in 2024-25.



Table 6.1.2 Estimates of general government sector payment 2020-21 2020-21

Revised


2020-21 2020-21 2020-21 2021-22 2022-23 2023-24 2024-25

Total payments ($b) 677.4 670.9 660.8 588.7 593.3 612.4 628.9

Real growth on

previous year (%)(a) 22.6 20.9 18.4 -12.6 -1.4 0.8 0.2

Per cent of GDP 34.8 33.4 32.1 27.6 27.3 26.9 26.2

(a) Real growth is calculated using the Consumer Price Index.

Table 6.2 provides a reconciliation of expense estimates between the 2020-21 Budget and

the 2021-22 Budget showing the effect of policy decisions, and economic parameter and

other variations.

Table 6.2: Reconciliation of expense estimates Estimates

2020-21 2021-22 2022-23 2023-24 Total

$m $m $m $m $m

2020-21 Budget expenses 670,330 567,491 574,907 596,619 2,409,347


2020-21 MYEFO

Effect of policy decisions(a) 5,402 2,787 1,439 1,110 10,737

Effect of parameter and other variations -8,411 437 -529 -2,063 -10,566

Total variations -3,009 3,224 909 -953 171

2020-21 MYEFO expenses 667,321 570,715 575,816 595,666 2,409,518


2021-22 Budget

Effect of policy decisions(a) 3,748 18,354 17,470 14,858 54,430

Effect of economic parameter variations

Total economic parameter variations 2,292 4,287 5,141 7,132 18,852

Unemployment benefits -4,096 -1,659 -1,403 -757 -7,914

Prices and wages -112 873 2,334 3,672 6,767

Interest and exchange rates -111 -277 -326 -386 -1,100

GST payments to the States 6,610 5,350 4,535 4,604 21,099

Public debt interest 72 881 1,595 2,838 5,386

Program specific parameter variations -3,547 -2,531 -121 -1,851 -8,049

Other variations -10,449 -2,372 -4,524 -3,978 -21,322

Total variations -7,884 18,619 19,562 18,999 49,296

2021-22 Budget expenses 659,437 589,334 595,378 614,665 2,458,814

(a) Excludes secondary impacts on public debt interest of policy decisions and offsets from the Contingency Reserve for decisions taken.



The combined impact of policy decisions and variations to program estimates has

increased expenses by $49.5 billion over the four years from 2020-21

to 2023-24 compared to the 2020-21 Budget. Since the 2020-21 MYEFO, public debt

interest, economic parameter variations and GST payments to states and territories have

increased expenses by $33.3 billion, while unemployment benefits variations, interest

and exchange rate variations, program specific parameter and other variations have

decreased expenses by $38.4 billion.

Estimated expenses by function

Table 6.3 sets out the estimates of Australian Government general government sector

expenses by function for the period 2020-21 to 2024-25.

Table 6.3: Estimates of expenses by function Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

General public services 33,037 26,070 24,811 25,148 25,830

Defence 33,375 34,473 36,496 38,344 40,721

Public order and safety 6,712 6,652 6,074 5,889 5,919

Education 42,604 42,799 43,496 44,626 46,010

Health 94,533 98,283 95,779 99,300 103,177

Social security and welfare 225,394 209,975 214,655 219,028 224,512

Housing and community amenities 6,953 7,869 6,283 5,517 5,028

Recreation and culture 4,405 4,532 4,151 3,959 3,938

Fuel and energy 9,090 9,638 9,546 10,069 10,567

Agriculture, forestry and fishing 4,014 4,483 3,779 3,280 2,450

Mining, manufacturing and construction 4,394 4,354 4,230 4,138 3,739

Transport and communication 13,828 14,460 17,618 16,411 13,322

Other economic affairs 83,819 14,640 11,091 10,103 10,068

Other purposes 97,279 111,106 117,368 128,853 138,414

Total expenses 659,437 589,334 595,378 614,665 633,694

Major expense trends between 2020-21 and 2021-22, and from 2021-22 over the forward

years include movements in the following functions:

• Defence — the increase in expenses from 2020-21 to 2024-25 reflects the increased

investment required to deliver the plans set out in the 2016 Defence White Paper and

the 2020 Force Structure Plan

• Education —the decrease in expenses between 2020-21 and 2021-22 primarily reflects

the cessation of temporary COVID-19 support measures implemented in the 2020-21

financial year. An increase in expenses from 2021-22 to 2024-25 largely reflects the

school funding arrangements implemented under the Quality Schools package



• Health — the increase in expenses from 2020-21 to 2021-22 is primarily driven by

expected growth in the assistance to the States for public hospitals sub-function,

largely reflecting higher anticipated growth in the volume of services. Decreases in

expenses from 2021-22 to 2024-25 are largely driven by expected decreases in the

health services and general administration sub-functions, primarily reflecting the

cessation of COVID-19 pandemic response measures

• Social security and welfare — the decrease in expenses from 2020-21 to 2021-22

largely reflects the cessation of temporary measures to respond to the COVID-19

pandemic, as well as an anticipated reduction in the number of unemployed

individuals, including through the forward estimates as the economy recovers.

From 2021-22 to 2024-25 there are increases across key sub-functions reflecting the

Government’s increased investment in the 2021-22 Budget in aged care, child care

and the NDIS

• Housing and community amenities — the increase in expenses from 2020-21

to 2021-22 largely reflects expected payments under the HomeBuilder program and

several urban and regional development measures. The decrease from 2022-23

to 2024-25 largely reflects the conclusion of the HomeBuilder program and the

scheduled completion of urban and regional development projects

• Transport and communication — the decrease in expenses from 2020-21 to 2024-25

largely reflects the conclusion of stimulus initiatives and cessation of temporary

support for the aviation sector as part of the Government’s response to the COVID-19

pandemic

• Other economic affairs —the decrease in expenses from 2020-21 to 2021-22, and the

decline in expenses from 2021-22 to 2024-25, largely reflects the temporary nature of

the Government’s COVID-19 economic support package

• Other purposes — the increase in expenses from 2020-21 to 2024-25 largely reflects

growing general revenue assistance payments (largely GST) to be made to the states

and territories and the conservative bias allowance component of the

Contingency Reserve.

Government expenses are strongly influenced by underlying trends in spending in the

social security and welfare, health and education functions (see Box 6.1). Together, these

functions account for 59.6 per cent of all government expenses in 2021-22. Further details

of spending trends against all functions, including movements in expenses from

2020-21 to 2021-22, are set out under individual function headings.



Box 6.1: Where does government spending go in 2021-22?

Government spending provides a wide range of services to the community. The most significant component of government spending relates to social security and welfare, with around one third of total expenses providing support to the aged, families with children, people with disabilities, veterans, carers and unemployed people.

Another one sixth of government expenses occur in health, including Medicare Benefits Schedule (MBS) and Pharmaceutical Benefits Scheme (PBS) payments. Approximately one eighth of government expenses are also transferred to the states and territories in general revenue assistance under the other purposes function.

The Government also provides significant investment under the education function, supporting government and non-government schools, as well as higher education and vocational education and training. The remainder is spent on defence and a range of other public services.

Chart 6.2: Expenses by function in 2021-22

Social security and welfare

35.6%

Other purposes18.9%

Health16.7%

Education7.3%

Defence5.8%

General public services

4.4%

All other functions11.3%

The estimates presented in the chart above are explained in greater detail under each individual function in the following pages.



Program expenses

Program expenses Table 6.3.1 reports the top 20 expense programs in the 2021-22

financial year. These programs represent around two thirds of total expenses in that

year. More than half of the top 20 expense programs provide financial assistance or

services to the aged, families, people with a disability, students, carers and the

unemployed.

Table 6.3.1: Top 20 programs by expenses in 2021-22 Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

Program(a) Function $m $m $m $m $m

Revenue assistance to the

States and Territories Other Purposes 71,729 75,188 78,564 82,032 86,408

Support for Seniors SSW 52,853 51,223 53,163 55,067 56,851

Medical Benefits Health 28,497 29,124 29,867 31,461 32,975

National Disability Insurance SSW

Scheme 24,607 28,115 29,835 30,796 33,320

Assistance to the States for Health

public hospitals 22,646 25,463 26,649 28,238 29,916

Aged Care Services SSW 22,533 24,159 27,621 29,817 31,136

Family Assistance SSW 18,746 21,009 20,707 20,826 20,549

Job Seeker Income Support SSW 31,266 18,099 15,135 14,694 14,493

Financial Support for People SSW

with Disability 18,411 17,763 18,073 18,596 18,923

Non Government Schools Education

National Support 13,010 14,710 15,509 16,200 16,752

Pharmaceutical Benefits Health 13,942 14,406 14,578 15,013 15,319

Government Schools National Education

Support 9,052 9,727 10,423 11,002 11,447

Financial Support for Carers SSW 9,906 9,709 10,154 10,642 11,046

Child Care Subsidy SSW 8,968 9,492 10,644 11,180 11,970

Public Sector Superannuation - Other purposes;

Benefits(b) General public

services 8,142 8,521 8,612 8,678 9,079

Fuel Tax Credits Scheme Fuel and Energy 7,623 8,072 8,450 9,117 9,860

National Partnership Payments - Transport and

Road Transport Communication 7,119 7,645 10,935 10,091 7,414

Commonwealth Grants Scheme Education 7,549 7,560 7,225 7,167 7,277

Army Capabilities Defence 7,221 7,469 7,934 8,524 9,247

Air Force Capabilities Defence 7,106 7,235 7,801 8,317 9,004

Sub-total 390,928 394,687 411,878 427,459 442,988

Other programs 268,510 194,647 183,500 187,206 190,707

Total expenses 659,437 589,334 595,378 614,665 633,694

(a) The entry for each program includes eliminations for inter-agency transactions within that program. (b) This program is a combination of superannuation nominal interest and accrual expenses.



General government sector expenses


The general public services function includes expenses to support the organisation and

operation of government such as those related to: the Parliament, the Governor-General;

the conduct of elections; the collection of taxes and management of public funds and

debt; assistance to developing countries to reduce poverty and achieve sustainable

development, particularly countries in the Pacific region; contributions to international

organisations; and foreign affairs. It also includes expenses related to research in areas

not otherwise connected with a specific function, those associated with overall economic

and statistical services, as well as government superannuation benefits (excluding

nominal interest expenses on unfunded liabilities, which are included under the

nominal superannuation interest sub-function in the other purposes function).

Table 6.4: Summary of expenses — general public services Sub-function Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Legislative and executive affairs 1,446 1,744 1,385 1,356 1,653

Financial and fiscal affairs 9,013 8,067 7,216 6,791 7,030

Foreign affairs and economic aid 6,949 6,340 6,204 6,615 6,532

General research 3,238 3,448 3,448 3,546 3,549

General services 1,237 771 748 759 764

Government superannuation benefits 11,153 5,700 5,810 6,082 6,301

Total general public services 33,037 26,070 24,811 25,148 25,830

Total general public services expenses are estimated to decrease by 22.6 per cent in real

terms from 2020-21 to 2021-22, and decrease by 7.6 per cent in real terms over the

period 2021-22 to 2024-25.

Expenses under the legislative and executive affairs sub-function partly reflect costs

expected to be incurred by the Australian Electoral Commission to support federal

elections in 2021-22 and 2024-25.

Expenses in the financial and fiscal affairs sub-function are expected to decrease by

12.2 per cent in real terms from 2020-21 to 2021-22, and are forecast to decrease

by 18.8 per cent in real terms from 2021-22 to 2024-25. The decrease from 2020-21

to 2021-22 are largely due to the cessation of temporary departmental funding increases

provided to the Australian Taxation Office, including for the administration of

JobKeeper, the JobMaker Hiring Credit and the modernisation of business registries.

The subsequent decrease from 2021-22 to 2024-25 reflects the termination of a number

of compliance measures.

Table 6.4.1 provides further details of the major components of foreign affairs and

economic aid sub-function expenses.



Table 6.4.1: Trends in the major components of foreign affairs and economic aid sub-function expenses Component(a) Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Foreign aid(b) 4,278 3,731 3,675 4,226 4,181

Diplomacy(c) 1,275 1,322 1,327 1,159 1,133

Payments to international organisations 471 419 428 429 435

Passport services 268 265 268 272 266

International police assistance 201 164 158 181 181

International agriculture research and

development 109 106 103 104 106

Consular services 199 181 130 127 128

Finance and insurance services for

Australian exporters and investors 13 9 8 6 3

Other 135 143 107 110 97

Total 6,949 6,340 6,204 6,615 6,532

(a) The entry for each component includes eliminations for inter-agency transactions within that component. (b) The foreign aid figures reflect aid spending by the Department of Foreign Affairs and Trade in accrual

terms. This differs from the international measure of aid reporting, official development assistance (ODA), which is in cash terms. Aid spending by other entities is usually reflected in other sub-functions.

(c) Diplomacy includes Departmental expenditure for the Department of Foreign Affairs and Trade’s Operations, Security and IT, overseas property and international climate change engagement.

Total expenses under the foreign affairs and economic aid sub-function are expected to

decrease by 10.5 per cent in real terms in 2021-22, and are forecast to decrease

by 4.0 per cent in real terms from 2021-22 to 2024-25.

The decrease in expenditure in 2021-22 and variation in the profile from 2022-23

to 2024-25 largely reflects the payment cycles of Australia’s contributions under

multi-year funding arrangements for multilateral funds and support provided in

response to the COVID-19 pandemic, including for vaccine access in the Pacific and

Southeast Asia.

Table 6.4.2 sets out the major components of general research sub-function expenses.

Table 6.4.2: Trends in the major components of general research sub-function expenses Component(a) Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Research — science services and innovation fund 1,374 1,407 1,413 1,421 1,360

Discovery — research and research training 484 490 496 502 511

Science and technology solutions 366 374 379 384 393

Linkage — cross sector research partnerships 325 327 332 336 341

Supporting science and commercialisation 294 430 389 351 307

Research capacity 285 305 320 430 517

Other 110 115 120 121 121

Total 3,238 3,448 3,448 3,546 3,549

(a) The entry for each component includes eliminations for inter-agency transactions within that component.



The general research sub-function incorporates expenses incurred by the Department

of Industry, Science, Energy and Resources, the Commonwealth Scientific and Industrial

Research Organisation (CSIRO), the Australian Nuclear Science and Technology

Organisation, the Australian Institute of Marine Science, the Department of Education,

Skills and Employment, and the Australian Research Council.

Total expenses under this sub-function are expected to increase by 4.5 per cent in real

terms from 2020-21 to 2021-22, and decrease by 4.0 per cent in real terms from 2021-22

to 2024-25. The increase in 2021-22 is primarily due to the 2021-22 Budget measure

Square Kilometre Array Radio Telescope Project.

The general services sub-function incorporates expenses largely incurred by the

Department of Finance, Australian Public Service Commission and Comcare. Total

expenses are expected to decrease by 38.9 per cent in real terms from 2020-21 to 2021-22,

and decrease by 7.7 per cent from 2021-22 to 2024-25, largely reflecting increased

insurance claims expenditure in 2020-21.

The fall in expenses from 2020-21 to 2024-25 in the government superannuation

benefits sub-function primarily reflects the use of different discount rates. In accordance

with accounting standards, superannuation expenses for 2020-21 were calculated using

the long term government bond rate which best matched each individual scheme’s

duration of liabilities at the start of the financial year. These rates were between 1.0

and 1.7 per cent per annum. In preparing the latest Long Term Cost Reports, the scheme

actuaries have determined that a discount rate of CPI plus 2.5 per cent should be applied

to the forward estimates.

Defence

The defence function includes expenses incurred by the Department of Defence

(Defence) and related agencies. Defence expenses support Australian military

operations overseas, the delivery capabilities across the Land, Maritime, Air, Space and

Information and Cyber domains, and strategic policy advice in the defence of Australia

and its national interests.

This function records the majority of expenses incurred by the Defence portfolio but

does not include the expenses incurred by the Department of Veterans’ Affairs,

superannuation payments to retired military personnel, and housing assistance

provided through Defence Housing Australia. These expenses are reported in the social

security and welfare, other purposes, and housing and community amenities functions,

respectively.

Table 6.5: Summary of expenses — defence Sub-function Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Defence 33,375 34,473 36,496 38,344 40,721

Total defence 33,375 34,473 36,496 38,344 40,721



Total expenses for the defence sub-function are estimated to increase by 1.4 per cent in

real terms from 2020-21 to 2021-22, and by 10.1 per cent in real terms over the period

2021-22 to 2024-25. The real growth reflects funding required by Defence to continue

delivery of the 2016 Defence White Paper and new or adjusted capability investments

outlined in the 2020 Force Structure Plan.

While the Government has committed to concluding Operations Highroad and Okra,

and finalising the drawdown of Australian Defence Force (ADF) personnel in

Afghanistan by September 2021, the Government has provided in the 2021-22 Budget a

further $181.8 million in 2021-22 to support major ADF Operations in the Middle East

and the protection of Australia’s borders and offshore maritime interests.

Public order and safety

The public order and safety function includes expenses to support the administration of

the federal legal system and the provision of legal services, including legal aid, to the

community. Public order and safety expenses also include law enforcement, border

protection and intelligence activities, and the protection of Australian Government

property.

Table 6.6: Summary of expenses — public order and safety Sub-function Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Courts and legal services 1,529 1,633 1,518 1,457 1,438

Other public order and safety 5,184 5,019 4,556 4,432 4,482

Total public order and safety 6,712 6,652 6,074 5,889 5,919

Total expenses for the public order and safety function are estimated to decrease

by 2.7 per cent in real terms from 2020-21 to 2021-22, and decrease by 17.1 per cent in

real terms over the period 2021-22 to 2024-25.

Expenses within the courts and legal services sub-function are estimated to increase

by 4.8 per cent in real terms from 2020-21 to 2021-22, mainly reflecting the

2021-22 Budget measure Royal Commission into Defence and Veteran Suicide, legal

assistance spending associated with the 2021-22 Budget measure Women’s Safety, and an

increase in spending on family law case management in the Federal Circuit Court of

Australia and Family Court of Australia. Expenses are expected to decrease by

18.0 per cent in real terms from 2021-22 to 2024-25, reflecting the conclusion of several

Royal Commissions which were largely provided funding from 2019-20 to 2022-23.

The major components of the other public order and safety sub-function expenses are

set out in Table 6.6.1.



Table 6.6.1: Trends in the major components of the other public order and safety sub-function expenses Component(a) Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Policing and law enforcement 3,802 3,594 3,287 3,157 3,199

Border protection 1,382 1,425 1,269 1,275 1,283

Total 5,184 5,019 4,556 4,432 4,482


Total expenses within the other public order and safety sub-function are expected to

decrease by 5.0 per cent in real terms from 2020-21 to 2021-22. An expected decrease of

16.8 per cent in real terms from 2021-22 to 2024-25 mainly reflects terminating measures

and reduced expenses for Border Enforcement and Management activities. The decrease

is partially offset by new investment through the following 2021-22 Budget measures:

Australian Security Intelligence Organisation — additional funding, Australian Criminal

Intelligence Commission — additional funding, and Protecting Critical Infrastructure and

Systems of National Significance.

Education

The education function includes expenses to support the delivery of education services

through higher education institutions; vocational education and training providers

(including technical and further education institutions); and government (state and

territory) and non-government primary and secondary schools.

Table 6.7: Summary of expenses — education Sub-function Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Higher education 11,369 10,628 10,241 10,200 10,339

Vocational and other education 2,224 2,022 1,805 1,622 1,644

Schools 22,061 24,437 25,933 27,202 28,199

Non-government schools 13,010 14,710 15,509 16,200 16,752

Government schools 9,052 9,727 10,423 11,002 11,447

School education — specific funding 705 744 679 702 690

Student assistance 5,953 4,686 4,570 4,646 4,882

General administration 292 282 268 255 256

Total education 42,604 42,799 43,496 44,626 46,010

Total education function expenses are expected to decrease by 1.4 per cent in real terms

from 2020-21 to 2021-22, and increase by 0.2 per cent in real terms from 2021-22

to 2024-25.



Expenses under the higher education sub-function are expected to decrease

by 8.3 per cent in real terms from 2020-21 to 2021-22, and decrease by 9.3 per cent in real

terms from 2021-22 to 2024-25. The decrease in expenses in 2021-22 primarily reflects the

cessation of additional funding to maintain universities’ research efforts in response to

the challenges caused by the COVID-19 pandemic. The subsequent decrease in expenses

over the forward estimates primarily reflects lower costs under the Commonwealth

Grant Scheme as a result of the Job-ready Graduates higher education reform package.

Expenses under the vocational and other education sub-function are expected to

decrease by 10.8 per cent in real terms from 2020-21 to 2021-22, and decrease by

24.2 per cent in real terms between 2021-22 and 2024-25. The decrease in expenses

in 2021-22 primarily reflects the impact of the conclusion of one-off increases in 2020-21,

which were part of the Government’s response to the COVID-19 pandemic. This

includes the Commonwealth’s share of the $1.0 billion JobTrainer Fund to assist job

seekers in accessing training to develop new skills in growth sectors of the economy.

This decrease is partially offset by the 2021-22 Budget measure Addressing Workforce

Shortages in Key Areas — JobTrainer Fund — extension. Further investments in skills and

apprenticeships are identified in the other economic affairs function. The subsequent

expected decrease in expenses over the forward estimates primarily reflects the

conclusion of the National Partnership on the Skilling Australians Fund on 30 June 2022,

and the JobTrainer Fund on 31 December 2022.

Aggregate schools funding expenses are expected to increase by 8.7 per cent in real terms

between 2020-21 and 2021-22, and increase by 7.6 per cent in real terms from 2021-22

to 2024-25. Expenses in the schools — non-government schools sub-function are

expected to increase by 11.0 per cent in real terms between 2020-21 and 2021-22, and

increase by 6.1 per cent in real terms from 2021-22 to 2024-25. Expenses under the

schools — government schools sub-function are expected to increase by 5.5 per cent in

real terms between 2020-21 and 2021-22, and increase by 9.7 per cent in real terms

from 2021-22 to 2024-25. The increase in expenses for schools funding over the forward

years is primarily due to the funding arrangements implemented under the

Quality Schools package and increased funding for non-government schools in the

Government’s response to the National School Resourcing Board’s Review of the

socio-economic status score methodology.

Expenses under the school education — specific funding sub-function are expected to

increase by 3.5 per cent in real terms between 2020-21 and 2021-22, and decrease

by 13.5 per cent in real terms from 2021-22 to 2024-25. The increase and subsequent

decrease in expenses primarily reflects the funding profile for the Early Learning and

Schools Support program.

Expenses under the student assistance sub-function are expected to decrease


real terms from 2021-22 to 2024-25. The decrease in expenses in 2021-22 primarily reflects

the cessation of temporary COVID-19 support measures implemented in the



2020-21 financial year. The decrease from 2021-22 to 2024-25 largely reflects an expected

decline in eligibility for student payments as the economy recovers following the

COVID-19 pandemic, partly offset by an increase in expenses under the

Higher Education Loan Program (HELP) as a result of an increase in loans issued under

the Job-ready Graduates higher education reform package. Expenses under HELP mainly

reflect the estimated cost to the Government of providing concessional loans, which will

vary with enrolment numbers and the number and value of HELP loans.

Health

The health function includes expenses relating to medical services that are funded

through Medicare; payments to the states and territories to deliver essential health

services, including public hospitals; the Pharmaceutical Benefits and Repatriation

Pharmaceutical Benefits Schemes; the Private Health Insurance Rebate; Aboriginal and

Torres Strait Islander health programs; mental health services; and health workforce

initiatives.

Table 6.8: Summary of expenses — health Sub-function Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Medical services and benefits 36,841 37,551 38,352 39,960 41,656

Pharmaceutical benefits and services 14,762 15,208 15,375 15,817 16,127

Assistance to the states for public hospitals 22,646 25,463 26,649 28,238 29,916

Hospital services(a) 1,143 1,195 1,147 1,161 1,172

Health services 14,130 13,653 9,755 9,658 9,811

General administration 4,036 4,233 3,491 3,419 3,405

Aboriginal and Torres Strait Islander health 975 980 1,011 1,048 1,089

Total health 94,533 98,283 95,779 99,300 103,177

(a) The hospital services sub-function predominantly reflects Commonwealth funding to the states and territories for veterans’ hospital services.

Expenses for the health function are estimated to increase by 2.0 per cent in real terms

between 2020-21 and 2021-22. This is largely driven by growth in the assistance to the

States for public hospitals sub-function, due primarily to higher anticipated growth in

the volume of services. Expenses for the health function are expected to decrease

by 2.1 per cent in real terms over the period 2021-22 to 2024-25, largely driven by

expected decreases in the health services and general administration sub-functions due

to the cessation of COVID-19 emergency response measures.

The medical services and benefits sub-function, which primarily consists of Medicare

and Private Health Insurance Rebate expenses, comprises 38.2 per cent of total estimated

health expenses for 2021-22. Growth in Medicare expenses is the major driver of growth

in this sub-function, with sub-function expenses estimated to increase by 3.4 per cent in


The major components of the medical services and benefits sub-function are set out in

Table 6.8.1.



Table 6.8.1: Trends in the major components of medical services and benefits sub-function expenses Component(a) Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Medical benefits 28,497 29,124 29,867 31,461 32,975

Private health insurance 6,657 6,747 6,864 6,981 7,138

General medical consultations and services 776 743 700 657 666

Dental services(b) 337 338 343 343 341

Other 573 600 578 518 537

Total 36,841 37,551 38,352 39,960 41,656

(a) The entry for each component includes eliminations for inter-agency transactions within that component. (b) Payments under the funding agreements on Public Dental Services for Adults from 2017-18 are provided

for under the health services sub-function in Table 6.8.

Expenses for medical benefits are expected to increase by 0.3 per cent in real terms

between 2020-21 and 2021-22, and increase by 5.5 per cent in real terms over the period

2021-22 to 2024-25, largely as a result of ongoing growth in the use of medical services

and the use of high value items on the Medicare Benefits Schedule.

Expenses for private health insurance are expected to decrease by 0.5 per cent in real

terms between 2020-21 and 2021-22, and decrease by 1.4 per cent in real terms over the

period 2021-22 to 2024-25. The proportion of Australians with private health insurance

is currently around 53.4 per cent.

Expenses for the pharmaceutical benefits and services sub-function are expected to

increase by 1.1 per cent in real terms between 2020-21 and 2021-22 largely as a result of

growth in the Pharmaceutical Benefits Scheme (PBS). Expenditure for this sub-function

is expected to decrease by 1.2 per cent in real terms over the period 2021-22 to 2024-25

primarily due to the impacts of existing pricing policies under the PBS, an expected

reduction in the number of veterans accessing services, and maintenance of current

levels of investment in the National Immunisation Program.

The major components of the pharmaceutical benefits and services sub-function are set

out in Table 6.8.2.

Table 6.8.2: Trends in the major components of pharmaceutical benefits and services sub-function expenses Component(a) Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Pharmaceutical benefits, services and supply 13,942 14,406 14,578 15,013 15,319

Immunisation 475 479 473 479 479

Veterans’ pharmaceutical benefits 345 323 323 325 328

Total 14,762 15,208 15,375 15,817 16,127




The Australian Government’s contribution to public hospital funding is reported

through the assistance to the States for public hospitals sub-function. Hospital services

covered by this sub-function include all admitted services, programs that deliver

hospital services in the home, and emergency department services. Expenditure for this

sub-function is expected to increase by 10.3 per cent in real terms from 2020-21 to

2021-22, largely reflecting higher anticipated growth in the volume of services.

Expenditure also reflects the impact of the National Efficient Price 2020-21 determination.

Expenditure is expected to increase by 9.5 per cent in real terms over the period 2021-22

to 2024-25, reflecting the Government’s agreement with states and territories for the

Commonwealth to fund 45.0 per cent of the efficient growth in activity based services

for public hospitals from 2020-21 to 2024-25.

The hospital services sub-function consists mainly of payments to the states and

territories to deliver veterans’ hospital services. Expenditure for this sub-function is

expected to increase by 2.6 per cent in real terms between 2020-21 and 2021-22, and

decrease by 8.5 per cent in real terms over the period 2021-22 to 2024-25. The decrease

in expenses reflects an expected reduction in the number of veterans requiring treatment

and efficiencies achieved in the pricing arrangements.

Expenses in the health services sub-function include Australian Government expenses

associated with the delivery of population health, medical research, mental health, blood

and blood products, other allied health services, health infrastructure and

disbursements from the Medical Research Future Fund.

Health services expenditure is expected to decrease by 5.2 per cent in real terms between

2020-21 and 2021-22, largely reflecting expected payments under the National

Partnership Agreement on the COVID-19 response. This is partially offset by an increase

in expenses reflected in the 2021-22 Budget measure COVID-19 Response Package —

vaccine purchases and rollout. Expenses are expected to decrease by 33.0 per cent in real

terms over the period from 2021-22 to 2024-25, largely reflecting the cessation of

COVID-19 emergency response measures.

The general administration sub-function includes the Government’s general

administrative costs, investment in health workforce measures and support for rural

health initiatives. Expenditure for this sub-function is expected to increase by

2.9 per cent in real terms between 2020-21 and 2021-22, largely reflecting the

continuation of short-term measures to respond to the COVID-19 pandemic, and

decrease by 25.0 per cent in real terms over the period 2021-22 to 2024-25, largely

reflecting a cessation of COVID-19 pandemic response measures.

Expenses in the Aboriginal and Torres Strait Islander health sub-function are expected

to decrease by 1.4 per cent in real terms from 2020-21 to 2021-22, as a result of reduced

payments to states and territories for an expiring partnership agreement, and increase

by 3.5 per cent in real terms over the period 2021-22 to 2024-25 reflecting utilisation of

Indigenous-specific services under the Indigenous Australians Health Program.




The social security and welfare function includes expenses for pensions and services to

the aged; assistance to the unemployed and the sick; people with disabilities and families

with children; and income support and compensation for veterans and their

dependants. It also includes assistance provided to Indigenous Australians that has not

been included under other functions.

Table 6.9: Summary of expenses — social security and welfare Sub-function Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Assistance to the aged 78,100 77,166 82,644 86,590 89,611

Assistance to veterans and dependants 8,050 7,962 8,071 6,602 6,487

Assistance to people with disabilities 56,881 58,779 60,854 62,854 64,972

Assistance to families with children 42,252 39,573 40,467 41,257 41,895

Assistance to the unemployed and the sick 31,266 18,099 15,135 14,694 14,493

Other welfare programs 1,847 1,646 1,561 1,345 1,367

Assistance for Indigenous Australians nec 2,431 2,522 2,347 2,422 2,477

General administration 4,567 4,229 3,576 3,262 3,210

Total social security and welfare 225,394 209,975 214,655 219,028 224,512

Expenses in the social security and welfare function are estimated to decrease

by 8.6 per cent in real terms from 2020-21 to 2021-22, and decrease by 0.3 per cent in real

terms from 2021-22 to 2024-25.

The most significant driver of the reduction in real expenditure between 2020-21

and 2024-25 is the assistance to the unemployed and the sick sub-function. However,

this reduction in expenditure has been partially offset by an ongoing increase in

expenditure from 2021-22 to 2024-25 in the assistance to the aged and assistance to

people with disabilities sub-functions. The assistance to the unemployed and the sick

sub-function is expected to decrease by 43.2 percent in real terms between 2020-21

and 2021-22, and decrease by 25.4 per cent in real terms from 2021-22 to 2024-25,

reflecting the cessation of the temporary COVID-19 support measures and the recovery

from the COVID-19-pandemic. The assistance to the aged sub-function is expected to

decrease by 3.0 per cent in real terms between 2020-21 and 2021-22 reflecting the

cessation of temporary COVID-19 supports, and grow by 8.2 per cent in real terms from

2021-22 to 2024-25. The assistance to people with disabilities sub-function is expected

to increase by 1.4 per cent in real terms from 2020-21 to 2021-22, and increase

by 3.0 per cent in real terms from 2021-22 to 2024-25.



The principal driver of growth over the forward estimates for the assistance to the aged

sub-function is growth in the Aged Care Services program, which is estimated to

increase by 5.2 per cent in real terms from 2020-21 to 2021-22, and increase

by 20.1 per cent in real terms from 2021-22 to 2024-25. This largely reflects the impact of

the 2021-22 Budget measures Aged Care — Government response to the Royal Commission

into Aged Care Quality and Safety — residential aged care services and sustainability, and Aged

Care — Government Response to the Royal Commission into Aged Care Quality and Safety —

home care, which includes significant new investment in home care and residential aged

care services.

The Government’s response to the Royal Commission into Aged Care Quality and

Safety also includes significant new investments to improve the quality and safety of the

sector, reflected in increased expenditure for the Aged Care Quality program, the Aged

Care Quality and Safety Commission (in the other sub-function) and Access and

Information program. Aged Care Quality program expenditure is estimated to decrease

by 55.4 per cent in real terms from 2020-21 to 2021-22 reflecting terminating funding that

was provided in 2020-21 in response to the COVID-19 pandemic. The program is

estimated to increase by 24.4 per cent in real terms from 2021-22 to 2022-23 reflecting

increased investment in the aged care workforce.

Also contributing to the overall growth in expenditure for the assistance to the aged

sub-function is the Support for Seniors program, which is estimated to decline

by 6.1 per cent in real terms from 2020-21 to 2021-22, and increase by 3.5 per cent in real

terms from 2021-22 to 2024-25. The fall in expenditure in 2021-22 is largely due to the

cessation of one-off COVID-19 related expenditure in 2020-21, with growth over the

forward estimates reflecting increased numbers of aged pensioners.

Expenses for veterans’ community care and support are estimated to decrease


real terms from 2021-22 to 2024-25, reflecting an expected decline in the number of

veterans and dependants. The majority of veterans expenditure is in the sub-function

assistance to veterans and dependants.



The major components of the assistance to the aged sub-function are outlined below in

Table 6.9.1.

Table 6.9.1: Trends in the major components of assistance to the aged sub-function expenses Component(a) Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Support for Seniors 53,544 51,223 53,163 55,067 56,851

Aged Care Services 22,533 24,159 27,621 29,817 31,136

Veterans’ Community Care and Support 965 915 848 761 791

Aged Care Quality 644 292 372 303 205

Access and information 274 363 446 448 456

National Partnership Payments —

Assistance to the Aged 20 13 19 20 0

Other 122 200 176 174 172

Total 78,100 77,166 82,644 86,590 89,611


Expenses for assistance to veterans and dependants is expected to decrease


real terms from 2021-22 to 2024-25. This reduction in expenditure is mainly attributable

to the declining veteran population.

Expenses for the assistance to people with disabilities sub-function are expected to

increase by 1.4 per cent in real terms from 2020-21 to 2021-22, and increase

by 3.0 per cent in real terms from 2021-22 to 2024-25. These increases largely reflect a

higher number of people with a disability entering the National Disability Insurance

Scheme (NDIS) and associated increases in individual support costs, which contributes

12.1 per cent growth in real terms from 2020-21 to 2021-22, and 10.5 per cent growth in

real terms from 2021-22 to 2024-25 for the NDIS.

Expenses for the Financial Support for People with Disability program, which primarily

consists of Disability Support Pension (DSP), are estimated to decrease by 5.3 per cent

in real terms from 2020-21 to 2021-22 mainly due to one-off COVID-19 related

expenditure in 2020-21, and to decrease by 0.7 per cent in real terms from 2021-22

to 2024-25 reflecting gradual growth in estimated recipient numbers.

Expenses for the Financial Support for Carers component are estimated to decrease by

1.6 per cent in real terms from 2020-21 to 2021-22 due to one-off COVID-19 related

expenditure in 2020-21, and increase by 2.7 per cent in real terms from 2021-22 to 2024-25

reflecting higher recipient numbers and payment rates.



The major components of the assistance to people with disabilities sub-function are

outlined below in Table 6.9.2.

Table 6.9.2: Trends in the major components of assistance to people with disabilities sub-function expenses Component(a) Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

National Disability Insurance Scheme(b) 24,607 28,115 29,835 30,796 33,320

Financial Support for People with Disability 18,411 17,763 18,073 18,596 18,923

Financial Support for Carers 11,516 11,552 11,860 12,319 12,728

National Partnership Payments — Assistance

to People with Disabilities 2,347 1,350 1,087 1,143 0

Total 56,881 58,779 60,854 62,854 64,972

(a) The entry for each component includes eliminations for inter-agency transactions within that component. (b) Includes both Commonwealth and State contributions to the cost of the National Disability Insurance

Scheme delivered through the National Disability Insurance Agency, which is a Commonwealth agency in the General Government Sector and the cost of the NDIS Transition program delivered by the Department of Social Services.

Expenses for the assistance to families with children sub-function are expected to

decrease by 8.1 per cent in real terms from 2020-21 to 2021-22, and decrease

by 1.3 per cent in real terms from 2021-22 to 2024-25, driven primarily by decreased

expenditure because of improving economic conditions. The major programs impacted

by this trend include Family Assistance, Parents Income Support, and the Child Care

Subsidy. Family Assistance expenses are expected to decrease by 2.3 per cent in real


to 2024-25. The decrease in Family Assistance expenses to 2024-25 is driven by Family

Tax Benefit (FTB) estimated recipient numbers and average payment rates falling from

2021-22 as the economy recovers from the effects of the COVID-19 pandemic.

The assistance to families with children sub-function profile includes an increase in

Child Care Subsidy (CCS) expenses of 3.9 per cent in real terms from 2020-21 to 2021-22,

and an increase of 17.5 per cent in real terms from 2021-22 to 2024-25. The increase

primarily reflects expected continued growth in the use of child care by families,

expected increases in fees charged by child care providers, and (from 2022-23) the

Government’s decision to remove the CCS annual cap and increase CCS payments to

services on behalf of families with multiple children aged five and under in care under

the 2021-22 Budget measure Women’s Economic Security Package.

Support for the child care system expenses are expected to decrease by 79.5 per cent in

real terms from 2020-21 to 2021-22, and decrease by 7.2 per cent in real terms

from 2021-22 to 2024-25. The decrease in expenses from 2020-21 to 2021-22 is driven by

the cessation of additional support payments which were provided to Early Childhood

Education and Care services in 2020-21 to help services remain viable during the

COVID-19 pandemic.



Expenses for Parents Income Support are expected to decrease by 28.8 per cent in real

terms from 2020-21 to 2021-22 due to the ending of the temporary Coronavirus

Supplement, and decrease by 3.5 per cent in real terms from 2021-22 to 2024-25.

The major components of the assistance to families with children sub-function are set

out in Table 6.9.3.

Table 6.9.3: Trends in the major components of assistance to families with children sub-function expenses Component(a) Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Family Assistance 21,109 21,009 20,707 20,826 20,549

Child Care Subsidy 8,968 9,492 10,644 11,180 11,970

Parents income support 7,932 5,755 5,757 5,847 5,961

Child Support 2,082 2,103 2,127 2,151 2,175

Support for the child care system 1,336 279 282 277 278

Families and Children 626 689 692 712 695

Family relationship services 182 229 241 247 250

Other 16 16 17 17 17

Total 42,252 39,573 40,467 41,257 41,895


Expenses for the assistance to the unemployed and the sick sub-function are estimated

to decrease by 43.2 per cent in real terms from 2020-21 to 2021-22, and to decrease

by 25.4 per cent in real terms from 2021-22 to 2024-25. The fall in expenditure in 2021-22

is largely due to the cessation of the temporary Coronavirus Supplement and improved

labour market conditions. The decline in expenses from 2021-22 to 2024-25 reflects the

continuing economic recovery from COVID-19.

Expenses for the assistance for Indigenous Australians not elsewhere classified (nec)

sub-function are estimated to increase by 1.8 per cent in real terms from 2020-21

to 2021-22, and decrease by 8.5 per cent in real terms from 2021-22 to 2024-25. This

decrease is largely due to cessation of temporary 2020-21 Budget measures to address

the impacts of the COVID-19 pandemic, such as the increased support for the

Community Development Program and employees of Commonwealth-owned

Indigenous subsidiaries, from 2021-22 onwards.

Expenses for the general administration sub-function are estimated to decrease


real terms from 2021-22 to 2024-25. This is mainly attributable to an estimated reduction

in recipients of income support payments as the economic recovery builds, as well as

the implementation of measures by Services Australia and the Department of

Social Services, involving upfront service delivery costs that are estimated to decrease

over time.



Housing and community amenities

The housing and community amenities function includes expenses for the

Australian Government’s contribution to the National Housing and Homelessness

Agreement, other Australian Government housing programs, the expenses of

Defence Housing Australia (DHA), urban and regional development programs and

environmental protection initiatives.

Table 6.10: Summary of expenses — housing and community amenities Sub-function Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Housing 3,735 4,418 3,185 2,508 2,443

Urban and regional development 1,476 1,606 1,254 1,069 750

Environment protection 1,743 1,844 1,845 1,940 1,835

Total housing and community amenities 6,953 7,869 6,283 5,517 5,028

Total expenses under the housing and community amenities function are estimated to

increase by 11.1 per cent in real terms from 2020-21 to 2021-22, and decrease

by 40.4 per cent in real terms from 2021-22 to 2024-25. The decrease is primarily driven

by reduced expenses for the housing sub-function due to the ending of the HomeBuilder

program in 2022-23 and the urban and regional development sub-function, reflecting

completion of projects under key programs.

The housing sub-function includes the Australian Government’s contribution to the

National Housing and Homelessness Agreement, the provision of housing for the

general public and people with special needs, and DHA expenses. Expenses for this

sub-function are estimated to increase by 16.1 per cent in real terms from 2020-21

to 2021-22, and decrease by 48.5 per cent in real terms from 2021-22 to 2024-25. This is

largely driven by the cessation of the temporary HomeBuilder program, and decreasing

payments under the National Rental Affordability Scheme which is now closed to new

applicants.

The Government also provides housing support through the National Housing Finance

and Investment Corporation in the form of guarantees, loans, investments and grants to

encourage investment in housing, with a particular focus on affordable housing.

The urban and regional development sub-function comprises of City and Regional

Deals, services to territories and regional development programs, including Community

Development Grants and the Building Better Regions Fund. Expenses are estimated to

increase by 6.8 per cent in real terms from 2020-21 to 2021-22 reflecting a number of

2021-22 Budget measures, including Supporting Regional Australia and Services to

Territories — additional funding. Expenses decline by 56.5 per cent in real terms from

2021-22 to 2024-25, largely reflecting the expected completion of a number of projects

under key programs, such as the Building Better Regions Fund, the National Stronger

Regions Fund, the Regional Jobs and Investment packages, the Regional Growth Fund,

and various City Deals.



The environment protection sub-function includes expenses for a variety of initiatives,

including the protection and conservation of the environment, water and waste

management, pollution abatement and environmental research. Expenses are estimated

to increase by 3.9 per cent in real terms from 2020-21 to 2021-22, and decrease

by 7.3 per cent in real terms from 2021-22 to 2024-25. The increase from 2020-21

to 2021-22 primarily reflects the continued investment in water infrastructure under the

$3.4 billion National Water Grid Fund (formerly the National Water Infrastructure

Development Fund). The decrease in expenditure from 2021-22 to 2024-25 primarily

relates to the cessation of funding to maintain timely Commonwealth environmental

assessments and approvals during the transition to single touch approvals announced

in the 2020-21 and 2021-22 Budgets, and the re-profiling of expenditure from 2020-21

to 2021-22 for the Bushfire Recovery Species and Landscapes under the National

Bushfire Recovery Fund.

Recreation and culture

The recreation and culture function includes expenses to support public broadcasting

and cultural institutions, funding for the arts and the film industry, assistance to sport

and recreation activities, as well as the management and protection of national parks

and other world heritage areas. This function also includes expenses relating to the

protection and preservation of historic sites and buildings, including war graves.

Table 6.11: Summary of expenses — recreation and culture Sub-function Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Broadcasting 1,507 1,524 1,515 1,526 1,537

Arts and cultural heritage 1,699 1,914 1,672 1,568 1,585

Sport and recreation 615 543 478 391 338

National estate and parks 584 550 486 474 478

Total recreation and culture 4,405 4,532 4,151 3,959 3,938

Total expenses under the recreation and culture function are estimated to increase



Expenses under the broadcasting sub-function are expected to decrease by 0.8 per cent

in real terms from 2020-21 to 2021-22, and decrease by 6.0 per cent in real terms

from 2021-22 to 2024-25. This partly reflects the Government’s decision in the

2018-19 Budget to pause indexation of the Australian Broadcasting Corporation’s (ABC)

operational funding from 2019-20 to 2021-22, which has no impact on funding for

transmission and distribution. This decision is partially offset by additional funding

announced in the 2021-22 Budget measure Media Sector Support.



Table 6.11.1 provides further details of the major components of broadcasting

sub-function expenses.

Table 6.11.1: Trends in the major components of broadcasting sub-function expenses Component(a) Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

ABC general operational activities 901 900 891 903 914

SBS general operational activities 343 357 353 348 344

ABC transmission and distribution services 190 192 193 195 198

SBS transmission and distribution services 73 75 78 80 82

Total 1,507 1,524 1,515 1,526 1,537


Expenses under the arts and cultural heritage sub-function are estimated to increase


real terms from 2021-22 to 2024-25. This sub-function includes funding for the arts and

cultural institutions. The estimated increase from 2020-21 to 2021-22, and the decrease

from 2021-22 to 2024-25 are predominantly driven by the 2021-22 Budget measures

COVID-19 Response Package — additional arts sector support and National Collecting

Institutions — enhancements, that include a range of temporary support measures, many

of which terminate in 2021-22 or 2022-23.

Expenses under the sport and recreation sub-function are estimated to decrease


real terms from 2021-22 to 2024-25. The decrease in 2021-22 primarily reflects the

cessation of short-term funding provided for sport in the 2020-21 Budget and MYEFO,

as well as COVID-19 related delays to sports grants programs which had moved

expenditure from 2019-20 into 2020-21. The reduction in expenditure from 2021-22

to 2024-25 largely reflects the expected completion of grant funding for short-term

community-led projects to increase participation in sport and physical activity, and the

further completion of elements of the national sport plan, Sport 2030.

Expenses under the national estate and parks sub-function are estimated to decrease


real terms from 2021-22 to 2024-25. The decrease from 2020-21 to 2021-22 reflects

additional investment in 2020-21 for heritage sites in Sydney Harbour relative to outer

year expenditure through the 2020-21 Budget measure titled Sydney Harbour Federation

Trust — infrastructure improvements. The decrease from 2021-22 to 2024-25 reflects a

number of terminating measures for the Australian Antarctic Program, Director of

National Parks and Great Barrier Reef Marine Park Authority.



Fuel and energy

The fuel and energy function includes expenses for the Fuel Tax Credits and Product

Stewardship Waste (Oil) schemes, administered by the Australian Taxation Office.

It also includes expenses related to improving Australia’s energy efficiency, resource

related initiatives, and programs to support the production and use of renewable

energy.

Table 6.12: Summary of expenses — fuel and energy Sub-function Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Fuel and energy 9,090 9,638 9,546 10,069 10,567

Total fuel and energy 9,090 9,638 9,546 10,069 10,567

Fuel and energy expenses are estimated to increase by 4.1 per cent in real terms

from 2020-21 to 2021-22, and increase by 2.2 per cent in real terms over the period

2021-22 to 2024-25 reflecting 2021-22 Budget measures that invest in fuel security.

Table 6.12.1 provides further details of the fuel and energy sub-function.

Table 6.12.1: Trends in the major components of fuel and energy sub-function expenses Component(a) Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Fuel Tax Credits Scheme 7,623 8,072 8,450 9,117 9,860

Resources and Energy 756 424 170 57 24

Renewable Energy 298 373 281 294 308

Other 413 769 645 601 375

Total 9,090 9,638 9,546 10,069 10,567


The major program within this function is the Fuel Tax Credits Scheme, which is

estimated to increase by 3.9 per cent in real terms from 2020-21 to 2021-22, and increase

by 13.9 per cent in real terms from 2021-22 to 2024-25, largely reflecting increased use of

fuels that are eligible for the Fuel Tax Credits Scheme.

Expenses under the Resources and Energy component are estimated to decrease


real terms from 2021-22 to 2024-25. The decrease in expenses from 2021-22 to 2024-25

reflects the upfront recognition of expenses in 2020-21 associated with the rehabilitation

of the Ranger Uranium Mine.



Expenses under the Renewable Energy component are expected to increase

by 22.7 per cent in real terms from 2020-21 to 2021-22, and decrease by 23.0 per cent from

2021-22 to 2024-25. The increase in expenses from 2020-21 to 2021-22 reflects additional

funding for the Australian Renewable Energy Agency (ARENA) in the 2020-21 Budget

measure JobMaker Plan — investment in new energy technologies, including for further

grant funding and for the Future Fuels Fund. The overall decrease in expenses under

the Renewable Energy component from 2021-22 to 2024-25 reflects the ARENA’s

legislated funding profile, which is partially offset by the additional grant funding

provided to ARENA in the 2020-21 Budget.

Agriculture, forestry and fishing

The agriculture, forestry and fishing function includes expenses to support assistance to

primary producers, forestry, fishing, land and water resources management, quarantine

services and contributions to research and development.

Table 6.13: Summary of expenses — agriculture, forestry and fishing Sub-function Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Wool industry 50 53 56 61 65

Grains industry 204 211 206 206 204

Dairy industry 53 53 53 54 55

Cattle, sheep and pig industry 244 250 254 259 259

Fishing, horticulture and other agriculture 483 402 352 345 350

General assistance not allocated to

specific industries 44 39 39 39 39

Rural assistance 1,170 553 448 336 360

Natural resources development 859 1,940 1,447 1,141 279

General administration 906 982 925 840 841

Total agriculture, forestry and fishing 4,014 4,483 3,779 3,280 2,450

Total expenses under this function are estimated to increase by 9.6 per cent in real terms

from 2020-21 to 2021-22, and decrease by 49.1 per cent in real terms over the period

2021-22 to 2024-25.

The rural assistance sub-function is expected to decrease by 53.6 per cent in real terms

from 2020-21 to 2021-22, and decrease by 39.4 per cent in real terms over the period

2021-22 to 2024-25. The initial decrease from 2020-21 to 2021-22 mainly reflects the

cessation of the additional package of measures provided to support farmers and

communities in drought as well as COVID-19 response measures. In particular, this

includes the discount on expenses associated with the additional concessional loan

funding through the Regional Investment Corporation (RIC) in the July 2020 Economic

and Fiscal Update measure Drought Response, Resilience and Preparedness Plan — further

support for farmers and communities in drought. The subsequent decrease from 2021-22

to 2024-25 mainly relates to the profile of expenses for the concessional loans through

the RIC and the Farm Household Allowance.



The majority of expenses under the natural resources development sub-function are

related to water initiatives comprising urban and rural programs, including irrigation

modernisation, recycling and stormwater capture. This also includes activities to

enhance the environmental outcomes in the Murray-Darling Basin.

Table 6.13.1 provides further details of the natural resources development sub-function.

Table 6.13.1: Trends in the major components of natural resources development sub-function expenses Component(a) Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Water reform(b) 573 1,539 1,130 909 64

Sustainable management — natural resources 15 71 84 17 14

Other 271 330 233 215 201

Total 859 1,940 1,447 1,141 279

(a) The entry for each component includes eliminations for inter-agency transactions within that component. (b) Water Reform includes the following programs: National Partnership Payments — Water and Natural

Resources; Water Reforms; and Commonwealth Environmental Water.

Expenses under the natural resources development sub-function are estimated to

increase by 121.6 per cent in real terms from 2020-21 to 2021-22, which reflects the

Government’s commitment to enhancing the implementation of the Murray-Darling

Basin Plan (Basin Plan). The subsequent decrease of 86.6 per cent in real terms

from 2021-22 to 2024-25 reflects the expected completion of water reform activities under

the Basin Plan in 2023-24. Basin Plan initiatives are funded through the Sustainable Rural

Water Use and Infrastructure Program and the Water for the Environment Special

Account.

Mining, manufacturing and construction

The mining, manufacturing and construction function includes expenses for programs

designed to promote the efficiency and competitiveness of Australian industries. The

major components include the Research and Development Tax Incentive and industry

assistance programs, including the Australian Technology and Science Growth Plan

which supports the Government’s commitment to science and innovation as key drivers

of business growth, economic prosperity and job opportunities.

Table 6.14: Summary of expenses — mining, manufacturing and construction Sub-function Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Mining, manufacturing and construction 4,394 4,354 4,230 4,138 3,739

Total mining, manufacturing

and construction 4,394 4,354 4,230 4,138 3,739



Total expenses under the mining, manufacturing and construction function are expected

to decrease by 2.8 per cent in real terms from 2020-21 to 2021-22, and decrease

by 20.0 per cent in real terms over the period 2021-22 to 2024-25.

Table 6.14.1 provides further details of the major components of the mining,

manufacturing and construction sub-function.

Table 6.14.1: Trends in major components of mining, manufacturing and construction sub-function expenses Component(a) Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Research and Development Tax Incentive 3,085 2,729 2,759 2,891 3,030

Growing Business Investment 384 726 850 662 238

Northern Australia Infrastructure Facility 671 549 314 311 218

Other 254 351 308 274 253

Total 4,394 4,354 4,230 4,138 3,739


Expenses for the Research and Development Tax Incentive, administered by the

Australian Taxation Office, are expected to decrease by 13.2 per cent in real terms

from 2020-21 to 2021-22, reflecting a one-off adjustment for higher than estimated claims

for prior years (both the number and size of claims). Expenses are expected to increase

by 3.5 per cent in real terms from 2021-22 to 2024-25, reflecting changes in the number

and size of expected claims from eligible companies with an annual turnover of less

than $20 million.

Expenses under the Growing Business Investment component are expected to increase


real terms from 2021-22 to 2024-25. The increase and subsequent decrease in expenditure

reflects the funding profile of the 2020-21 Budget measure JobMaker Plan — Modern

Manufacturing Strategy, which provides additional financial support to the

manufacturing sector.

The Northern Australia Infrastructure Facility (NAIF) was established on 1 July 2016.

The NAIF offers concessional finance of up to $5 billion to encourage and complement

private sector investment in infrastructure that benefits northern Australia. The decrease

in expenses over the forward estimates reflects changes in concessional loan discount

expenses associated with the expected commitment of concessional loans across the

forward estimates.

Expenses under the Other component are expected to increase by 35.4 per cent in real


to 2024-25. The increase and subsequent decreases in the expenditure profile reflect the

completion of the 2020-21 MYEFO measure Satellite Based Augmentation System.



Transport and communication

The transport and communication function includes expenses to support the

infrastructure and regulatory framework for Australia’s transport and communication

sectors.

Table 6.15: Summary of expenses — transport and communication Sub-function Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Communication 1,244 1,708 1,603 1,379 1,349

Rail transport 1,376 2,805 3,436 3,437 3,107

Air transport 2,732 1,020 348 273 267

Road transport 7,765 8,187 11,473 10,595 7,934

Sea transport 458 462 463 469 475

Other transport and communication 253 277 296 258 191

Total transport and communication 13,828 14,460 17,618 16,411 13,322

Total expenses under this function are estimated to increase by 2.6 per cent in real terms

between 2020-21 and 2021-22, and decrease by 14.1 per cent in real terms over the period

2021-22 to 2024-25.

The estimated expenses for the communication sub-function relate to communication

activities and support for the digital economy through the Department of Infrastructure,

Transport, Regional Development and Communications, and the Australian

Communications and Media Authority. Total expenses under this sub-function are

estimated to increase by 34.8 per cent in real terms between 2020-21 and 2021-22, and

decrease by 26.4 per cent in real terms from 2021-22 to 2024-25. The increase

from 2020-21 to 2021-22 primarily reflects the commencement of the Regional

Broadband Scheme and the 2021-22 Budget measures Supporting Regional Australia and

Our North, Our Future — Next Five Year Plan for Northern Australia. The decrease in

expenditure from 2021-22 to 2024-25 primarily reflects the conclusion of the Regional

Connectivity Program and the Mobile Black Spot Program.

The expenses under the rail transport sub-function primarily consist of grants provided

under the Infrastructure Investment Program. Expenses are estimated to increase

by 100.0 per cent in real terms between 2020-21 and 2021-22, and increase by 3.2 per cent

in real terms from 2021-22 to 2024-25. The significant initial increase in expenditure

primarily reflects the Government’s commitments to major rail projects, including the

Sydney Metro — Western Sydney Airport, METRONET and Melbourne Airport Rail

Link. The subsequent increase in expenditure from 2021-22 to 2024-25 reflects the

Government’s continued investment in priority rail projects, including through the

2021-22 Budget measures titled Infrastructure Investment.



The estimated expenses for the air transport and sea transport sub-functions primarily

relate to activities of the safety regulators — the Civil Aviation Safety Authority and the

Australian Maritime Safety Authority (AMSA), and support for the aviation sector as

part of the Government’s response to the COVID-19 pandemic. Total expenses under

the air transport sub-function are estimated to decrease by 63.3 per cent in real terms

between 2020-21 and 2021-22, and decrease by 75.6 per cent in real terms from 2021-22

to 2024-25. The significant decrease in expenditure is associated with the cessation of

temporary support for the aviation sector as part of the Government’s response to the

COVID-19 pandemic. Total expenses under the sea transport sub-function are estimated

to decrease by 1.0 per cent in real terms between 2020-21 and 2021-22, and decrease

by 4.3 per cent in real terms from 2021-22 to 2024-25, reflecting a reduction in levy

revenue and costs for AMSA.

The expenses under the road transport sub-function primarily consist of grants

provided under the Infrastructure Investment Program. Expenses are estimated to

increase by 3.5 per cent in real terms between 2020-21 and 2021-22, and decrease by

9.7 per cent in real terms from 2021-22 to 2024-25. The initial increase in expenditure

reflects the Government’s continued investment in priority road projects, including

through the 2021-22 Budget measures titled Infrastructure Investment. The subsequent

decrease in expenditure from 2021-22 to 2024-25 reflects the completion of stimulus

initiatives, including the $3.0 billion Road Safety Program.

Total expenses under the other transport and communication sub-function are

estimated to increase by 7.6 per cent in real terms between 2020-21 and 2021-22, and

decrease by 35.9 per cent in real terms from 2021-22 to 2024-25. The initial increase in

expenditure primarily reflects the increase in program support provided to the

Infrastructure, Transport, Regional Development and Communications Portfolio for the

delivery of priority infrastructure and transport initiatives, including through the

2021-22 Budget measure Supporting Infrastructure Investment. The subsequent decrease

in expenditure from 2021-22 to 2024-25 reflects the cessation of temporary program

support provided through the 2020-21 Budget measure Supporting Infrastructure

Investment.



Other economic affairs

The other economic affairs function includes expenses on tourism and area promotion, labour market assistance, immigration, industrial relations and other economic affairs

not elsewhere classified (nec).

Table 6.16: Summary of expenses — other economic affairs Sub-function Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Tourism and area promotion 227 199 160 161 164

Total labour and employment affairs 6,546 7,530 5,541 4,702 4,577

Vocational and industry training 3,061 3,737 2,430 1,370 1,354

Labour market assistance to job

seekers and industry 2,687 2,945 2,376 2,648 2,549

Industrial relations 798 848 735 683 674

Immigration 3,622 3,694 2,683 2,638 2,746

Other economic affairs nec 73,424 3,216 2,708 2,604 2,581

Total other economic affairs 83,819 14,640 11,091 10,103 10,068

Total expenses under the other economic affairs function are expected to decrease by 82.9 per cent in real terms from 2020-21 to 2021-22, and decrease by 35.9 per cent in


Expenses under the tourism and area promotion sub-function are expected to decrease

by 13.6 per cent in real terms in 2021-22 and decrease by 23.2 per cent in real terms from 2021-22 to 2024-25. The decreases in expenses in 2021-22 and subsequent decrease from 2021-22 to 2024-25 largely reflect the temporary nature of the Government’s tourism

recovery campaigns in response to COVID-19 and bushfires.

Expenses under the vocational and industry training sub-function are expected to increase by 19.8 per cent in real terms from 2020-21 to 2021-22, and decrease by 66.2 per cent in real terms from 2021-22 to 2024-25. The increase in expenses in 2021-22 reflects further investment in the vocational education and training sector, on top of the major upskilling and re-skilling programs announced by the Government in the 2020-21 Budget, such as the JobMaker Plan — Skills Reform. Further investments in

the 2021-22 Budget include programs designed to help businesses to hire more apprentices, including the Building skills for the Future — Boosting Apprenticeship Commencements wage subsidy — expansion and other measures that would improve job seekers’ employability, to assist Australia’s economic recovery from the COVID-19 pandemic. The expenses are expected to decline from 2021-22 after temporary support measures such as the July 2020 Economic and Fiscal Update measure COVID-19 Response

Package — supporting apprentices and trainees and the 2020-21 Budget measure JobMaker

Plan — boosting apprenticeships wage subsidy cease.



Expenses under the labour market assistance to job seekers and industry sub-function are expected to increase by 7.6 per cent in real terms from 2020-21 to 2021-22, and decline by 19.3 per cent in real terms from 2021-22 to 2024-25, primarily due to the 2021-22 Budget measure New Employment Services Model, and other measures announced by the Government supporting job seekers to retain jobs and find sustainable

employment. The expenses are expected to decline from 2021-22 primarily as a result of anticipated service delivery efficiencies from servicing job-ready job seekers using digital platforms instead of face-to-face engagement.

Expenses under the industrial relations sub-function are expected to increase

by 4.3 per cent in real terms from 2020-21 to 2021-22, which reflects higher expected

payments for employee entitlements for employee entitlements under the Fair

Entitlements Guarantee Act 2012 resulting from employer bankruptcies during the

COVID-19 pandemic. Expenses under this sub-function are expected to decrease by

26.0 per cent in real terms from 2021-22 to 2024-25 as a result of lower expected payments

for employee entitlements under the Fair Entitlements Guarantee Act 2012 as a result of

predicted improved economic conditions.

The main components of the immigration sub-function relate to the management of

unlawful non-citizens, the provision of migration and citizenship services, and refugee

and humanitarian assistance.

Table 6.16.1 provides further details of the major components of the immigration

sub-function expenses.

Table 6.16.1: Trends in major components of the immigration sub-function expenses Component(a) Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Management of unlawful non-citizens 2,091 2,059 1,284 1,294 1,300

Citizenship, visas and migration 821 799 693 676 760

Regional co-operation and refugee and

humanitarian assistance 710 835 706 668 686

Total other economic affairs 3,622 3,694 2,683 2,638 2,746


Expenses under this sub-function are expected to increase by 0.1 per cent in real terms

between 2020-21 and 2021-22, and decrease by 30.7 per cent in real terms from 2021-22

to 2024-25.

The increase in expenditure between 2020-21 and 2021-22 reflects higher expenses for

regional cooperation and refugee and humanitarian assistance, including the

2021-22 Budget measure Migration Program — 2021-22 planning levels. This sub-function

also includes additional funding for onshore detention in the 2021-22 Budget measure

Immigration Detention Network, which is more than offset by lower occupancy rates in

offshore detention. The decrease in expenditure from 2021-22 to 2024-25 primarily

reflects lower forecast occupancy rates in offshore detention.



Expenses under the other economic affairs nec sub-function are expected to decrease


real terms from 2021-22 to 2024-25.

Table 6.16.2 provides further details of the major components of the other economic

affairs nec sub-function expenses.

Table 6.16.2: Trends in major components of the other economic affairs nec sub-function expenses Component(a) Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Economic Response to the Coronavirus 69,434 47 12 0 0

Promotion of Australia’s export and other

international economic interests(b) 1,439 632 360 350 350

Operating costs for:

Department of Industry, Science,

Energy and Resources 538 535 509 473 450

Australian Securities and Investments

Commission 677 563 536 529 529

Bureau of Meteorology 481 527 531 516 516

IP Australia 202 216 224 232 241

Australian Competition and Consumer

Commission 200 206 189 171 163

Australian Prudential Regulation Authority 196 226 206 206 207

National Partnership Payments — Competition

and Productivity Enhancing Reform 134 127 0 0 0

Other 123 138 140 126 126

Total 73,424 3,216 2,708 2,604 2,581

(a) The entry for each component includes eliminations for inter-agency transactions within that component. (b) The programs Export Market Development Grants scheme and trade, education and investment

development have been moved into the Promotion of Australia’s export and other international economic interests.

The decrease in expenditure for the other economic affairs nec sub-function between

2020-21 and 2021-22 is primarily the result of the temporary nature of the Government’s

economic response to the COVID-19 pandemic and reflects the conclusion of JobKeeper

in 2020-21.

The decrease in the level of expenditure for the promotion of Australia’s export and other international economic interests between 2020-21 and 2021-22 is primarily driven by support provided as part of the Government’s response to the COVID-19 pandemic in 2020-21, including through the International Freight Assistance Mechanism, Export Market Development Grants scheme and the Consumer Travel Support Program.



Expenses for the Department of Industry, Science, Energy and Resources are expected

to decrease by 21.6 per cent in real terms from 2021-22 to 2024-25, largely driven by

measures that start and terminate during the forward estimates. These include the

2021-22 Budget measure Australia’s Global Resources Strategy, as well as 2020-21 Budget

measures such as the JobMaker Plan — Modern Manufacturing Strategy and Australia’s

Cyber Security Strategy 2020.

Expenses for the Bureau of Meteorology (the Bureau) are expected to increase by 7.6 per cent in real terms from 2020-21 to 2021-22. The increase in expenses reflects additional funding provided to the Bureau in the 2021-22 Budget measure Building Australia’s Resilience. Expenses for the Bureau are expected to decrease by 8.8 per cent in real terms from 2021-22 to 2024-25, which reflects the profile of spending associated with information and communications technology (ICT) projects, including the second and third tranche of investment to strengthen the Bureau’s ICT security and resilience and observations network announced in the 2018-19 Budget and the 2020-21 Budget.

Other purposes

The other purposes function includes expenses incurred in the servicing of public debt

interest, and assistance to state, territory and local governments. This function also

includes items classified as natural disaster relief, the Contingency Reserve and

expenses related to the nominal interest on unfunded liabilities for government

superannuation benefits.

Table 6.17: Summary of expenses — other purposes

Sub-function Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Public debt interest 17,123 18,196 19,118 20,580 21,873

Interest on Commonwealth Government’s

behalf 17,123 18,196 19,118 20,580 21,873

Nominal superannuation interest 7,004 10,018 10,775 11,372 12,191

General purpose inter-government transactions 75,250 77,509 81,884 84,795 89,219

General revenue assistance — states and

territories 71,729 75,188 78,564 82,032 86,408

Local government assistance 3,520 2,321 3,321 2,763 2,811

Natural disaster relief(a) 748 327 253 92 39

Contingency reserve -2,845 5,055 5,338 12,014 15,091

Total other purposes 97,279 111,106 117,368 128,853 138,414

(a) Includes funding for the establishment of the National Recovery and Resilience Agency.

Total expenses under the other purposes function are estimated to increase

by 12.1 per cent in real terms from 2020-21 to 2021-22, and increase by 16.1 per cent in




Expenses under the public debt interest sub-function are expected to increase

by 4.3 per cent in real terms from 2020-21 to 2021-22, and increase by 12.0 per cent in real

terms from 2021-22 to 2024-25. The increase in expenses reflects an increase in expected

issuance of Australian Government Securities. Statement 7: Debt Statement of Budget

Paper No. 1 provides further information on Government debt, including estimates of

the relative contribution of capital and recurrent spending to the Government’s annual

borrowing task.

The increase in nominal superannuation interest expenses between 2020-21

and 2021-22 and over the forward estimates primarily reflects the use of different

discount rates. In accordance with the accounting standards, superannuation expenses

for 2020-21 were calculated using the long-term government bond rate, which best

matched each individual scheme’s duration of liabilities at the start of the financial year.

These rates were between 1.0 and 1.7 per cent per annum. In preparing the latest

Long-Term Cost Reports, the scheme actuaries have determined that a discount rate of

CPI plus 2.5 per cent should be applied to the forward estimates.

Expenses under the general purpose inter-government transactions sub-function are

expected to increase by 7.3 per cent in real terms from 2021-22 to 2024-25. Nearly all of

the expenses under this sub-function relate to general revenue assistance paid to state

and territory governments, which is expected to increase by 7.1 per cent in real terms

from 2021-22 to 2024-25, and largely comprises payments of GST entitlements provided

on an ‘untied’ basis. Payments to state and territory governments tied to specific

purposes are reported under the relevant sections in this Statement. Further information

on general revenue assistance to the states and territories can be found in Budget Paper

No. 3, Federal Financial Relations 2021-22.

Expenses under local government assistance are expected to decrease by 35.3 per cent

in real terms from 2020-21 to 2021-22, and increase by 12.9 per cent in real terms

from 2021-22 to 2024-25, largely reflecting half of the expected 2021-22 Financial

Assistance Grants being brought forward to enable the immediate use of these funds in

2020-21. This is partially offset by the termination of the Local Roads and Community

Infrastructure Program in 2022-23.

The natural disaster relief sub-function reflects financial support provided by the

Australian Government to affected states and territories under the Natural Disaster

Relief and Recovery Arrangements and, since November 2018, the Disaster Recovery

Funding Arrangements. The majority of the funding profile over the forward estimates

reflects expected payments to the states in relation to disaster events that have already

occurred. As no provision is made for future disasters, the amount reduces over time.

The sub-function also reflects departmental funding for the new National Recovery and

Resilience Agency.



The contingency reserve sub-function comprises the Contingency Reserve, which is an

allowance that principally reflects anticipated events that cannot be assigned to

individual programs in the preparation of the Australian Government budget estimates.

It is used to ensure that the estimates are based on the best information available at the

time of the Budget. It is not a general policy reserve and is not appropriated.

Allowances that are included in the Contingency Reserve can only be drawn upon once

they have been appropriated by Parliament. These allowances are allocated to specific

entities for appropriation closer to the time when the associated events occur.

The contingency reserve sub-function in the 2021-22 Budget increases expenses

by $5.1 billion in 2021-22, $5.3 billion in 2022-23, $12.0 billion in 2023-24 and $15.1 billion

in 2024-25. A significant component of this is the conservative bias allowance (CBA),

which makes provision for the tendency for the estimates of expenses for existing

Government policy to be revised upwards in the forward years. The 2021-22 Budget

includes a provision of:

• nil in the Budget year 2021-22

• ½ of a percentage point of total general government sector expenses (excluding GST

payments to the states) in the first forward year 2022-23 ($2.5 billion)

• 1 per cent of expenses in the second forward year 2023-24 ($5.2 billion)

• 2 per cent provision of expenses in the third forward year 2024-25 ($10.6 billion).

The drawdown of the CBA decreased expenses by $1.3 billion in 2021-22, $1.2 billion

in 2022-23, $2.5 billion in 2023-24 and $1.6 billion in 2024-25. This is consistent with long

standing practice and does not represent a saving or offset to spending measures.

In general, the Contingency Reserve can also include:

• a provision for underspends in the current financial year reflecting the tendency for

budgeted expenses for some entities or functions not to be met

• commercial-in-confidence and national security-in-confidence items that cannot be

disclosed separately and programs that are yet to be renegotiated with state and

territory governments

• the effect, on the budget and forward estimates, of economic parameter revisions

received late in the process and hence not able to be allocated to individual entities

or functions

• decisions taken but not yet announced by the Government, and decisions made too

late for inclusion against individual entity estimates



• provisions for other specific events and pressures that are reasonably expected to

affect the budget estimates.

General government net capital investment

Net capital investment is broadly defined as the sale and acquisition of non-financial

assets less depreciation expenses. It provides a measure of the overall growth in capital

assets (including buildings and infrastructure, specialist military equipment and

computer software) after taking into account depreciation and amortisation as

previously acquired assets age.

Government capital spending involves acquisition of physical assets, financial assets

and provision of grants and subsidies to others (primarily state and territory

governments), which they use to acquire assets.

Australian Government general government sector net capital investment is expected to

be $10.3 billion in 2021-22, $1.7 billion higher than net capital investment in 2020-21.

This change is largely due to increased investment by the Department of Defence

outlined in the 2016 Defence White Paper and 2020 Force Structure Plan. The Government’s

investment in capital assets is expected to continue to increase in 2022-23 before

declining over the remainder of the forward estimates.

Details of movements are further explained in the following section.

Table 6.18: Estimates of total net capital investment 2020-21 2020-21

Revised


2020-21 2020-21 2020-21 2021-22 2022-23 2023-24 2024-25

Total net capital

investment ($m) 7,818 8,758 8,620 10,330 10,939 10,135 9,161

Per cent of GDP 0.4 0.4 0.4 0.5 0.5 0.4 0.4

Reconciliation of net capital investment since the 2020-21 Budget

A reconciliation of the net capital investment estimates, showing the effect of policy

decisions and parameter and other variations since the 2020-21 Budget, is provided in

Table 6.19.



Table 6.19: Reconciliation of net capital investment estimates

Estimates

2020-21 2021-22 2022-23 2023-24 Total

$m $m $m $m $m

2020-21 Budget net capital investment 7,818 9,906 11,013 10,819 39,556


2020-21 MYEFO

Effect of policy decisions(a) 52 -1 27 39 117

Effect of parameter and other variations 888 -51 16 -62 791

Total variations 940 -52 43 -23 908

2020-21 MYEFO net capital investment 8,758 9,854 11,056 10,796 40,464


2021-22 Budget

Effect of policy decisions(a) -114 342 239 -70 397

Effect of parameter and other variations -24 134 -357 -591 -838

Total variations -138 476 -118 -661 -441

2021-22 Budget net capital investment 8,620 10,330 10,939 10,135 40,023

(a) Excludes secondary impacts on public debt interest of policy decisions and offsets from the Contingency Reserve for decisions taken.

Forecast net capital investment for 2021-22 has increased by $423.8 million since the

2020-21 Budget. This increase is driven by the effect of policy decisions of $341.0 million,

with a further increase of $82.8 million resulting from parameter and other variations.

Further information on the capital measures since the 2020-21 MYEFO can be found in

Budget Paper No. 2, Budget Measures 2021-22.



Net capital investment estimates by function

Estimates for Australian Government general government sector net capital investment

by function for the period 2020-21 to 2024-25 are provided in Table 6.20.

Table 6.20: Estimates of net capital investment by function Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

General public services 421 597 250 -322 -540

Defence 5,868 8,965 10,686 11,160 10,787

Public order and safety 312 315 -288 -282 -326

Education 34 42 13 10 -25

Health 1,991 14 -36 -78 -92

Social security and welfare -390 -127 220 -78 -144

Housing and community amenities -242 -128 55 42 101

Recreation and culture 111 257 226 6 -93

Fuel and energy 21 21 14 -3 -1

Agriculture, forestry and fishing 41 68 63 18 -27

Mining, manufacturing and construction -22 -24 -12 0 -14

Transport and communication -4 -25 -36 37 -47

Other economic affairs 478 297 -231 -436 -473

Other purposes 2 58 15 59 54

Total net capital investment 8,620 10,330 10,939 10,135 9,161

A significant component of the Government’s net capital investment occurs in the

defence function, and relates primarily to the acquisition of military equipment. Major

factors contributing to changes in net capital investment, expected to occur in the

following functions, include:

• General public services — the increase in net capital investment from 2020-21

to 2021-22 reflects the timing of lease renewals by the Department of Home Affairs,

the expected timing of various overseas capital works to be undertaken by the

Department of Foreign Affairs and Trade, and the expected completion of a major

ICT project by the Australian Tax Office

• Defence — reflects funding associated with the implementation of the 2016 Defence

White Paper and new or adjusted investments outlined in the 2020 Force Structure Plan

to build the future Defence Force and capability. These investments are guided by

the Defence Integrated Investment Program. Major investments include military

capabilities such as ships, aircraft and armoured vehicles, as well as ICT capabilities

and infrastructure

• Public order and safety — reflects the completion of investments from previous

Budgets in national security capabilities for law enforcement and intelligence

agencies and the administration of the federal legal system, partially offset by further

investment in the 2021-22 Budget



• Health — largely reflects the change in the National Medical Stockpile procurement

strategies in response to the COVID-19 pandemic

• Social security and welfare — is largely driven by depreciation and amortisation of

prior Commonwealth investments into Services Australia’s non-financial assets such

as ICT capabilities and infrastructure. This is partially offset by further

Commonwealth investment in ICT capabilities and infrastructure across 2020-21

to 2022-23, including the 2021-22 Budget measures GovERP — Common Corporate

Australian Public Service System and myGov enhancements, and the 2020-21 Budget

measure Welfare Payment Infrastructure Transformation — tranche four

• Other economic affairs — the increase in net capital investment from 2020-21

to 2021-22 reflects the timing of lease renewals by the Department of Home Affairs.

Table 6.21 reports the acquisition of non-financial assets by function before taking into

account depreciation or amortisation.

Table 6.21: Australian Government general government sector purchases of non-financial assets by function Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

General public services 1,951 2,244 1,788 1,227 1,029

Defence 11,951 15,207 17,507 18,980 19,166

Public order and safety 1,105 1,155 558 559 501

Education 74 83 59 57 19

Health 268 250 193 131 112

Social security and welfare 444 751 1,008 684 573

Housing and community amenities 336 343 421 420 450

Recreation and culture 544 716 682 481 379

Fuel and energy 15 33 25 9 8

Agriculture, forestry and fishing 134 162 157 114 70

Mining, manufacturing and construction 16 14 27 39 26

Transport and communication 123 107 100 174 56

Other economic affairs 1,353 1,188 661 465 445

Other purposes 3 75 17 61 57

General government purchases

of non-financial assets 18,318 22,325 23,202 23,402 22,890



Appendix A: Expense by Function and Sub-Function

Table 6A.1: Estimates of expenses by function and sub-function Actual Estimates

2019-20 2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m $m


Legislative and executive affairs 1,366 1,446 1,744 1,385 1,356 1,653

Financial and fiscal affairs 7,302 9,013 8,067 7,216 6,791 7,030

Foreign affairs and economic aid 6,270 6,949 6,340 6,204 6,615 6,532

General research 2,940 3,238 3,448 3,448 3,546 3,549

General services 855 1,237 771 748 759 764

Government superannuation

benefits 10,739 11,153 5,700 5,810 6,082 6,301

Total general public services 29,472 33,037 26,070 24,811 25,148 25,830

Defence 33,187 33,375 34,473 36,496 38,344 40,721

Public order and safety

Courts and legal services 1,416 1,529 1,633 1,518 1,457 1,438

Other public order and safety 4,973 5,184 5,019 4,556 4,432 4,482

Total public order and safety 6,388 6,712 6,652 6,074 5,889 5,919

Education

Higher education 9,652 11,369 10,628 10,241 10,200 10,339

Vocational and other education 1,713 2,224 2,022 1,805 1,622 1,644

Schools 22,305 22,061 24,437 25,933 27,202 28,199

Non-government schools 13,918 13,010 14,710 15,509 16,200 16,752

Government schools 8,387 9,052 9,727 10,423 11,002 11,447

School education —

specific funding 722 705 744 679 702 690

Student assistance 5,271 5,953 4,686 4,570 4,646 4,882

General administration 222 292 282 268 255 256

Total education 39,885 42,604 42,799 43,496 44,626 46,010

Health

Medical services and benefits 32,668 36,841 37,551 38,352 39,960 41,656

Pharmaceutical benefits and

services 14,175 14,762 15,208 15,375 15,817 16,127

Assistance to the states for

public hospitals 22,560 22,646 25,463 26,649 28,238 29,916

Hospital services(a) 1,248 1,143 1,195 1,147 1,161 1,172

Health services 11,888 14,130 13,653 9,755 9,658 9,811

General administration 3,510 4,036 4,233 3,491 3,419 3,405

Aboriginal and Torres Strait

Islander health 973 975 980 1,011 1,048 1,089

Total health 87,023 94,533 98,283 95,779 99,300 103,177


Assistance to the aged 71,855 78,100 77,166 82,644 86,590 89,611

Assistance to veterans and

dependants 7,711 8,050 7,962 8,071 6,602 6,487

Assistance to people with

disabilities 49,038 56,881 58,779 60,854 62,854 64,972



Table 6A.1: Estimates of expenses by function and sub-function (continued)

Actual Estimates

2019-20 2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m $m


(continued)

Assistance to families with

children 38,604 42,252 39,573 40,467 41,257 41,895

Assistance to the unemployed

and the sick 20,128 31,266 18,099 15,135 14,694 14,493

Other welfare programs 1,869 1,847 1,646 1,561 1,345 1,367

Assistance for Indigenous

Australians nec 2,388 2,431 2,522 2,347 2,422 2,477

General administration 4,526 4,567 4,229 3,576 3,262 3,210

Total social security and welfare 196,119 225,394 209,975 214,655 219,028 224,512

Housing and community

amenities

Housing 2,752 3,735 4,418 3,185 2,508 2,443

Urban and regional development 1,292 1,476 1,606 1,254 1,069 750

Environment protection 1,288 1,743 1,844 1,845 1,940 1,835

Total housing and community

amenities 5,332 6,953 7,869 6,283 5,517 5,028

Recreation and culture

Broadcasting 1,500 1,507 1,524 1,515 1,526 1,537

Arts and cultural heritage 1,439 1,699 1,914 1,672 1,568 1,585

Sport and recreation 544 615 543 478 391 338

National estate and parks 487 584 550 486 474 478

Total recreation and culture 3,971 4,405 4,532 4,151 3,959 3,938

Fuel and energy 7,892 9,090 9,638 9,546 10,069 10,567

Agriculture, forestry and fishing

Wool industry 58 50 53 56 61 65

Grains industry 199 204 211 206 206 204

Dairy industry 55 53 53 53 54 55

Cattle, sheep and pig industry 230 244 250 254 259 259

Fishing, horticulture and other

agriculture 393 483 402 352 345 350

General assistance not allocated

to specific industries 39 44 39 39 39 39

Rural assistance 426 1,170 553 448 336 360

Natural resources development 431 859 1,940 1,447 1,141 279

General administration 754 906 982 925 840 841

Total agriculture, forestry and

fishing 2,584 4,014 4,483 3,779 3,280 2,450

Mining, manufacturing and

construction 2,819 4,394 4,354 4,230 4,138 3,739



Table 6A.1: Estimates of expenses by function and sub-function (continued)

Actual Estimates

2019-20 2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m $m

Transport and communication

Communication 679 1,244 1,708 1,603 1,379 1,349

Rail transport 555 1,376 2,805 3,436 3,437 3,107

Air transport 935 2,732 1,020 348 273 267

Road transport 4,499 7,765 8,187 11,473 10,595 7,934

Sea transport 438 458 462 463 469 475

Other transport and

communication 216 253 277 296 258 191

Total transport and

communication 7,321 13,828 14,460 17,618 16,411 13,322

Other economic affairs

Tourism and area promotion 165 227 199 160 161 164

Total labour and employment

affairs 3,810 6,546 7,530 5,541 4,702 4,577

Vocational and industry training 1,083 3,061 3,737 2,430 1,370 1,354

Labour market assistance to

job seekers and industry 2,024 2,687 2,945 2,376 2,648 2,549

Industrial relations 702 798 848 735 683 674

Immigration 3,488 3,622 3,694 2,683 2,638 2,746

Other economic affairs nec 58,030 73,424 3,216 2,708 2,604 2,581

Total other economic affairs 65,494 83,819 14,640 11,091 10,103 10,068

Other purposes

Public debt interest 16,923 17,123 18,196 19,118 20,580 21,873

Interest on Commonwealth

Government’s behalf 16,923 17,123 18,196 19,118 20,580 21,873

Nominal superannuation interest 7,673 7,004 10,018 10,775 11,372 12,191

General purpose inter-government

transactions 64,603 75,250 77,509 81,884 84,795 89,219

General revenue assistance —

states and territories 62,027 71,729 75,188 78,564 82,032 86,408

Local government assistance 2,576 3,520 2,321 3,321 2,763 2,811

Natural disaster relief(b) 1,863 748 327 253 92 39

Contingency reserve 0 -2,845 5,055 5,338 12,014 15,091

Total other purposes 91,062 97,279 111,106 117,368 128,853 138,414

Total expenses 578,549 659,437 589,334 595,378 614,665 633,694

(a) The hospital services sub-function predominantly reflects Commonwealth funding to the states and territories for veterans’ hospital services.

(b) Includes funding for the establishment of the National Recovery and Resilience Agency.

Statement 7: Debt Statement | Page 201

Statement 7: Debt Statement

Using the Government’s balance sheet to provide emergency support to limit the economic impact and long-term scarring stemming from the COVID-19 crisis was necessary and prudent. While the unprecedented support has resulted in a significant increase in debt, historically low interest rates mean the cost of servicing debt is relatively low. Furthermore, debt as a share of the economy remains low in comparison with other advanced economies.

Net debt is expected to be 34.2 per cent of GDP at 30 June 2022 and peak at 40.9 per cent of GDP ($980.6 billion) at 30 June 2025, before decreasing to 37.0 per cent of GDP at 30 June 2032.

Details on debt projections over the forward estimates and medium-term can be found in Statement 3: Fiscal Strategy and Outlook.

Contents

Overview ..................................................................................................... 203

Australian Government Securities issuance ............................................ 203

Estimates and projections of key debt aggregates .................................. 205

Estimates of AGS on issue ........................................................................ 205 Changes in AGS on issue since the 2020-21 Budget ................................................. 208 Breakdown of AGS currently on issue ........................................................................ 210 Treasury Bonds ........................................................................................................... 210 Treasury Indexed Bonds ............................................................................................. 212 Treasury Notes ............................................................................................................ 213

Non-resident holdings of AGS on issue ................................................... 213

Estimates and projections of net debt ...................................................... 214 Changes in net debt since the 2020-21 Budget .......................................................... 214

Interest on AGS .......................................................................................... 216

Climate spending........................................................................................ 219 Impact of climate spending on debt ............................................................................ 220


Statement 7: Debt Statement

Overview

The Debt Statement provides information on current and projected Government gross

and net debt, interest costs related to Australian Government Securities (AGS) and

details of climate spending, including the extent to which this spending has contributed

to debt.

The Government’s strong track record of budget management enabled Australia to

make effective use of the balance sheet during the COVID-19 pandemic. Prior to the

pandemic, the 2019-20 MYEFO forecast that net debt would be 19.5 per cent of GDP

($392.3 billion) at 30 June 2020, declining to 16.9 per cent of GDP ($364.5 billion)

at 30 June 2022 and 1.8 per cent of GDP by the end of the medium term at 30 June 2030.

As a result of the Government’s decisive action in providing unprecedented economic

support in response to the COVID-19 pandemic, net debt is now expected to be

34.2 per cent of GDP ($729.0 billion) at 30 June 2022, increasing to a peak of 40.9 per cent

of GDP ($980.6 billion) at 30 June 2025, before falling to 37.0 per cent of GDP by the end

of the medium term.

The face value of AGS on issue (gross debt) subject to the Treasurer’s Direction is

expected to be around $963 billion (45.1 per cent of GDP) at 30 June 2022, increasing to

around $1,199 billion (50.0 per cent of GDP) at 30 June 2025. Total AGS on issue is

projected to stabilise as a share of the economy over the medium term.

Australian Government Securities issuance

The Government finances its activities either through receipts or by borrowing. When

receipts fall short of payments, the Government borrows by issuing AGS.

The Australian Office of Financial Management (AOFM) is responsible for issuing AGS

and managing the Government’s financing activities. The AOFM currently issues

three types of securities:

• Treasury Bonds: medium to long-term securities with a fixed annual rate of interest

payable every six months.

• Treasury Indexed Bonds (TIBs): medium to long-term securities for which the

capital value of the security is adjusted for movements in the consumer price index

(CPI). Interest on TIBs is paid quarterly, at a fixed rate, on the adjusted capital value.

• Treasury Notes: short-term discount securities, which mature within one year of

issuance. The volume of Treasury Notes on issue will vary over the course of the

year, depending on the size and profile of the within-year funding requirements.


Page 204 | Statement 7: Debt Statement

Within these three broad categories of AGS, issuance is undertaken into a limited

number of maturities (known as lines). The number of lines on issue is determined by

the AOFM as part of its debt portfolio management role. Each line has a fixed maturity

date (the date on which the Government repays the principal it has borrowed) and, for

Treasury Bonds and TIBs, a coupon rate (the annual fixed interest rate paid on

the security).

Concentrating AGS issuance into a limited number of lines (rather than issuing

securities with a specific tenor, such as 10 years) ensures each line is sufficiently large

that it can be more readily traded in the secondary market. Strong liquidity in the

secondary market is attractive to investors and intermediaries, promotes demand for

AGS and assists in lowering borrowing costs. All AGS issuance is undertaken in

Australian dollars.

The AOFM exercises operational independence in the execution of its duties. Its

announced issuance program for each year is determined on the basis of maturing AGS,

net new issuance required to fund the Budget and operational considerations.

Operational considerations often mean that the annual issuance program may not be

equivalent to the financing task for a particular year. For example, the AOFM may

decide there is merit in partially pre-funding the following year’s financing task.

Alternatively, the AOFM might choose to smooth issuance across several financial years

in order to minimise changes in AGS supply from one financial year to the next.

The AOFM aims to maintain an AGS yield curve out to a 30-year benchmark bond. This

facilitates a lower risk profile of maturing debt, broadens the investor base and helps to

reduce the impact of interest rate volatility on budget outcomes. Further details on the

AOFM’s debt issuance program are available on the AOFM website at

www.aofm.gov.au.

www.aofm.gov.au



Estimates and projections of key debt aggregates

The level of current and projected Government debt on issue is commonly expressed in

one of two ways: gross or net debt.

Gross debt measures the face value of AGS on issue at a point in time. While gross debt

is measured in face-value terms, estimates of AGS on issue are published in both face

value and market value terms in this Statement.

• The face value of AGS on issue is the amount that the Government pays back to

investors at maturity, independent of fluctuations in market prices.19 The total face

value of AGS on issue changes when new securities are issued, or when securities

are repurchased or reach maturity.

• The market value of AGS on issue represents the value of securities as traded on the

secondary market, which changes continuously with movements in market prices

(often quoted as a yield to maturity). Consistent with external reporting standards,

the market value of AGS on issue is reported in the Australian Government general

government sector balance sheet.

Net debt is equal to the sum of interest-bearing liabilities (which includes AGS on issue

measured at market value) less the sum of selected financial assets (cash and deposits,

advances paid and investments, loans and placements). As net debt incorporates both

selected financial assets and liabilities at their fair value, it provides a broader measure

of the financial obligations of the Australian Government than gross debt.

Not all government assets or liabilities are included in the measurement of net debt.

For example, the Government’s unfunded superannuation liability is not accounted for

in net debt, nor are holdings of equities, for example those held by the Future Fund or

the Government’s equity investment in the NBN.

Estimates of AGS on issue

Table 7.1 contains estimates of the face value (end-of-year and within-year peak)20 and

the market value (end-of-year) of AGS on issue.

19 For TIBs, the final repayment amount paid to investors includes an additional amount owing

to inflation growth over the life of the security. This amount is not included in the calculation of face value.

20 End-of-year values are estimates of AGS on issue at 30 June for the particular year. The precise timing and level of within-year peaks of AGS on issue cannot be determined with accuracy. The timing of the within-year peak is therefore reported to the given month in the particular year.



The Commonwealth Inscribed Stock Act 1911 (CIS Act) requires the Treasurer to issue a

direction stipulating the maximum face value of relevant AGS that may be on issue.

As required by the Charter of Budget Honesty Act 1998, Table 7.1 reports estimates of AGS

on issue subject to the Treasurer’s Direction. On 7 October 2020, the Treasurer directed

that the maximum face value of AGS that can be on issue is $1,200 billion.

When considering these estimates, it is important to note that the AOFM publishes an

issuance program for the budget year only. Estimates beyond the budget year are based

on a set of technical assumptions and will vary with changes to these assumptions and

budget estimates.

Table 7.1: Estimates of AGS on issue subject to the Treasurer’s Direction(a)(b) Estimates

2020-21 2021-22 2022-23 2023-24 2024-25 $b $b $b $b $b

Face value — end-of-year 829 963 1,058 1,134 1,199

Per cent of GDP 40.2 45.1 48.6 49.7 50.0

Face value — within-year peak(c) 841 963 1,058 1,139 1,220

Per cent of GDP(c) 40.8 45.1 48.6 49.9 50.9

Month of peak(c) May-21 Jun-22 Apr-23 Apr-24 Apr-25

Market value — end-of-year 892 1,028 1,126 1,207 1,274

Per cent of GDP 43.3 48.2 51.7 52.9 53.2

(a) The Treasurer’s Direction applies to the face value of AGS on issue. This table also shows the equivalent market value of AGS that are subject to the Treasurer’s Direction.

(b) The stock and securities that are excluded from the current limit set by the Treasurer’s Direction are outlined in subsection 51JA(2A) of the CIS Act.

(c) The precise within-year timing of cash receipts and payments is not known. Estimated peaks of AGS on issue are therefore subject to considerable uncertainty.

Source: AOFM.

The total amount of AGS on issue subject to the Treasurer’s Direction is reported weekly

on the AOFM website.

In 2021-22, the end-of-year face value of AGS on issue subject to the Treasurer’s

Direction is expected to be around $963 billion, compared with $1,016 billion at the

2020-21 Budget. The end-of-year face value of AGS on issue subject to the Treasurer’s

Direction is expected to reach around $1,199 billion in 2024-25.

In 2021-22, the face value of AGS on issue subject to the Treasurer’s Direction is expected

to reach a within-year peak of around $963 billion. In 2024-25, this is estimated to rise to

a within-year peak of $1,220 billion.



Box 7.1: AOFM’s issuance strategy during the COVID-19 pandemic

Prior to the pandemic, the largest Treasury bond issuance program was $106 billion in 2016-17 (see Chart 7.1). For March to June 2020 alone, around $90 billion of issuance was required and a total of more than $250 billion was issued from March 2020 to March 2021. This meant there was no precedent to guide whether extremely large weekly bond issuance could be sustained. Early uncertainty was compounded by stress in global financial markets in mid-March 2020 which saw investors rapidly selling bonds in large volumes to meet liquidity needs.

The overriding objective of government cash management is to ensure the Commonwealth can meet its financial obligations at all times. A precautionary cash balance held at the Reserve Bank of Australia (RBA) and access to short-term funding markets (in the form of issuing Treasury Notes) act as a ‘buffer’ in times of unforeseen stress. During periods of extreme market turbulence, investors seek safety in short-term, low risk places to invest cash, such as Treasury Notes. Together, cash reserves and Treasury Note issuance allowed access to sufficient liquidity while the required bond issuance program was established.

Chart 7.1: Annual bond issuance and Treasury Notes outstanding

0

25

50

75

100

125

150

175

200

225

0

25

50

75

100

125

150

175

200

225

2006-07 2008-09 2010-11 2012-13 2014-15 2016-17 2018-19 2020-21

$b$b

Gross term debt issuance

Maximum volume of Treasury Notes on issue

Source: AOFM and Treasury projections.



Box 7.1: AOFM’s issuance strategy during the COVID-19 pandemic (continued)

The AOFM provided regular updates to funding markets as new information became available to facilitate a smooth build up in bond issuance over the year. The scale of the issuance task was such that bond issuance via competitive tenders alone was judged not to be sufficient. A significant increase in tender volumes was combined with a number of large syndicated issues, in which a panel of banks was engaged to place bonds directly with investors. At the same time Treasury Note issuance was increased to unprecedented levels. The RBA’s unconventional monetary policy tools helped to ease market conditions and facilitate smooth absorption of bond issuance.

The Australian response to the extreme financing tasks, in terms of a balanced reliance on bond and Treasury Note issuance and the heavy use of syndications, was consistent with the approaches taken by many OECD countries.

There are a number of factors that meant Australia was well positioned to finance the Government’s COVID-19 response: the starting point for issuance programs was low because of declining budget deficits leading into the pandemic; a previous focus on long-dated borrowing had reduced annual refinancing requirements; the Australian Government has the highest possible credit rating (AAA by all major agencies); the AGS market has a strong reputation amongst the international investor community; a relatively large number of banks service the market through the intermediary role; the Australian dollar is a well-understood and liquid currency; and the actions of the RBA ensured functionality of the AGS market.

The events of last year, while unforeseen and unprecedented, are reflective of the depth and strength of the Australian Government’s access to global funding markets. Australia remains well positioned to deal with many possible future scenarios given the profile of the debt portfolio, a diverse investor base, strong funding market-facing institutions, and the Government’s commitment to its Economic and Fiscal Strategy.

Changes in AGS on issue since the 2020-21 Budget

Table 7.2 shows the change in the estimated end-of-year face value of AGS on issue

subject to the Treasurer’s Direction between the 2020-21 Budget and the 2021-22 Budget.

Gross debt is expected to be lower across all years than estimated at the 2020-21 Budget.

The improvement in gross debt is driven by the Government’s decreased borrowing

requirements resulting from the improvement in the underlying cash balance since the

2020-21 Budget.



Table 7.2: Estimated AGS on issue subject to the Treasurer’s Direction —reconciliation from the 2020-21 Budget to the 2021-22 Budget

Estimates 2020-21 2021-22 2022-23 2023-24

$b $b $b $b

Total face value of AGS on issue subject to the Treasurer’s Direction as at 2020-21 Budget 872 1016 1083 1138

Factors affecting the change in face value of AGS on issue from 2020-21 Budget to 2021-22 Budget(a)

Cumulative receipts decisions 0.1 0.5 8.5 23.5

Cumulative receipts variations -36.1 -66.7 -86.0 -107.5

Cumulative payment decisions 8.2 29.2 48.1 64.2

Cumulative payment variations -24.8 -21.1 -17.2 -14.3

Cumulative change in net investments in financial assets(b)(c) -42.2 -67.8 -36.0 -25.6

Other contributors(c) 51.9 72.9 57.7 55.7

Total face value of AGS on issue subject to the Treasurer’s Direction as at 2021-22 Budget

829 963 1,058 1,134

(a) Cumulative impact of decisions and variations from 2020-21 to 2023-24. Increases to payments are shown as positive and increases to receipts are shown as negative.

(b) Change in net cash flows from investments in financial assets for policy and liquidity purposes. (c) AOFM has moved from primarily using term deposits to a cash management account for investing cash

for short-term liquidity management. This has resulted in a decrease in investments, loans and placements and an increase in cash and deposits.

Note: End-of-year data.

The total face value of AGS on issue (gross debt) is expected to rise over the forward

estimates and stabilise over the medium term at around 51 per cent of GDP. At the

2020-21 Budget, gross debt was projected to stabilise at around 55 per cent of GDP

(Chart 7.2). Gross debt at the 2021-22 Budget is projected to be lower in each year of the

forward estimates and medium term than projected at the 2020-21 Budget.

Chart 7.2: Face value of AGS as a share of GDP

35

40

45

50

55

60

35

40

45

50

55

60

2020-2

1

2021-2

2

2022-2

3

2023-2

4

2024-2

5

2025-2

6

2026-2

7

2027-2

8

2028-2

9

2029-3

0

2030-3

1

2031-3

2

% of GDP% of GDP

2021-22 Budget

2020-21 Budget


Source: AOFM and Treasury projections.



Breakdown of AGS currently on issue

Table 7.3 provides a breakdown of the AGS on issue by type of security as at 3 May 2021.

Table 7.3: Breakdown of current Australian Government Securities on issue On issue as at 3 May 2021

Face value Market value $m $m

Treasury Bonds 764,434 815,848

Treasury Indexed Bonds 38,276 51,998

Treasury Notes 30,750 30,748

Total AGS subject to Treasurer’s Direction(a) 833,459 898,595

Other stock and securities 6 6

Total AGS on issue 833,465 898,601

(a) The stock and securities that are excluded from the current limit set by the Treasurer’s Direction are outlined in subsection 51JA(2A) of the CIS Act.

Source: AOFM.

Treasury Bonds

Table 7.4 lists Treasury Bonds currently on issue, as well as the annual interest rate (the

coupon) and the timing of coupon payments. As at 3 May 2021, there were 30 Treasury

Bond lines on issue, with a weighted average term to maturity of around 7.6 years and

the longest maturity extending to June 2051.



Table 7.4: Treasury Bonds on issue On issue as at

Coupon 3 May 2021

Per cent Maturity $m Timing of interest payments(a)

5.75 15-May-21 25,824 Twice yearly 15-May 15-Nov

2.00 21-Dec-21 16,398 Twice yearly 21-Dec 21-Jun

5.75 15-Jul-22 24,763 Twice yearly 15-Jul 15-Jan

2.25 21-Nov-22 26,500 Twice yearly 21-Nov 21-May

5.50 21-Apr-23 34,200 Twice yearly 21-Apr 21-Oct






0.50 21-Sep-26 30,000 Twice yearly 21-Sep 21-Mar








1.00 21-Dec-30 36,900 Twice yearly 21-Dec 21-Jun

1.50 21-Jun-31 31,300 Twice yearly 21-Jun 21-Dec









3.00 21-Mar-47 13,300 Twice yearly 21-Mar 21-Sep


(a) Where the timing of an interest payment falls on a non-business day, the payment will occur on the following business day.

Source: AOFM.



Treasury Indexed Bonds

Table 7.5 lists TIBs currently on issue, as well as the annual interest rate (the coupon)

and the timing of coupon payments. As at 3 May 2021, there were 7 TIB lines on issue,

with a weighted average term to maturity of around 9.5 years and the longest maturity

extending to February 2050.

Table 7.5: Treasury Indexed Bonds on issue On issue as at

Coupon 3 May 2021

Per cent Maturity $m Timing of interest payments(a)

1.25 21-Feb-22 6,840 Quarterly 21-Feb 21-May 21-Aug 21-Nov

3.00 20-Sep-25 7,743 Quarterly 20-Sep 20-Dec 20-Mar 20-Jun

0.75 21-Nov-27 6,100 Quarterly 21-Nov 21-Feb 21-May 21-Aug

2.50 20-Sep-30 5,743 Quarterly 20-Sep 20-Dec 20-Mar 20-Jun

2.00 21-Aug-35 4,350 Quarterly 21-Aug 21-Nov 21-Feb 21-May

1.25 21-Aug-40 3,650 Quarterly 21-Aug 21-Nov 21-Feb 21-May

1.00 21-Feb-50 3,850 Quarterly 21-Feb 21-May 21-Aug 21-Nov

(a) Where the timing of an interest payment falls on a non-business day, the payment will occur on the following business day.

Source: AOFM.



Treasury Notes

Table 7.6 lists the Treasury Notes currently on issue. As at 3 May 2021 there were

five Treasury Note lines on issue. Treasury Notes do not pay a coupon.

Table 7.6: Treasury Notes on issue On issue as at 3 May 2021

Maturity $m Timing of interest payment

21-May-21 8,000 At maturity 21-May

25-Jun-21 8,500 At maturity 25-Jun

23-Jul-21 6,500 At maturity 23-Jul

27-Aug-21 4,250 At maturity 27-Aug

24-Sep-21 3,500 At maturity 24-Sep

Source: AOFM.

Non-resident holdings of AGS on issue

As at the December quarter 2020, the proportion of non-resident holdings of AGS was

around 54 per cent (Chart 7.3). This proportion is down from historical highs of

around 76 per cent in 2012.

Chart 7.3: Non-resident holdings of AGS

0

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40

60

80

100

0

100

200

300

400

500

600

700

800

900

1000

Jun 2003 Dec 2005 Jun 2008 Dec 2010 Jun 2013 Dec 2015 Jun 2018 Dec 2020

$b

Resident holdings (LHS) Non-resident holdings (LHS) Proportion of non-resident holdings (RHS)

% of total AGS on issue

Note: Data refer to the repo-adjusted market value of holdings. Source: ABS Balance of Payments and International Investment Position, Australia December 2020, AOFM,

RBA.



Estimates and projections of net debt

Table 7.7 contains the liabilities and assets included in net debt over the forward

estimates.

Net debt is expected to be $729.0 billion (34.2 per cent of GDP) at 30 June 2022 and

increase to $980.6 billion (40.9 per cent of GDP) at 30 June 2025.

Table 7.7: Liabilities and assets included in net debt Estimates

2020-21 2021-22 2022-23 2023-24 2024-25 $m $m $m $m $m

Liabilities included in net debt

Deposits held 484 484 484 484 484

Government securities(a) 891,811 1,028,091 1,126,277 1,207,245 1,274,052

Loans 16,345 16,125 16,091 16,073 16,101

Other borrowing 19,527 19,991 20,071 19,480 18,494

Total liabilities included in net debt 928,166 1,064,691 1,162,923 1,243,281 1,309,131 0 0 0 0 0 Assets included in net debt

Cash and deposits(b) 46,693 61,795 43,691 42,473 40,883

Advances paid 82,235 85,655 88,321 76,384 77,706

Investments, loans and placements(b) 181,717 188,218 195,897 203,976 209,981

Total assets included in net debt 310,645 335,668 327,909 322,833 328,570 0 0 0 0 0 Net debt 617,521 729,023 835,015 920,448 980,561

(a) Government securities are presented at market value. (b) AOFM has moved from primarily using term deposits to a cash management account for investing cash

for short-term liquidity management. This has resulted in a decrease in investments, loans and placements and an increase in cash and deposits.

Changes in net debt since the 2020-21 Budget

Table 7.8 shows the drivers of the change in net debt between the 2020-21 Budget and

the 2021-22 Budget.

Net debt is expected to be lower than estimated at the 2020-21 Budget across all years of

the forward estimates. The improvement in net debt since the 2020-21 Budget is driven

by the Government’s decreased borrowing requirements resulting from the

improvement in the underlying cash balance and a decrease in the market value of AGS

due to higher yields than were assumed at the 2020-21 Budget.



Table 7.8: Net debt — reconciliation from the 2020-21 Budget to the 2021-22 Budget Estimates

2020-21 2021-22 2022-23 2023-24 $b $b $b $b

Net debt as at 2020-21 Budget 703.2 812.1 899.8 966.2

Changes in financing requirement -52.4 -62.9 -35.4 -10.8

Impact of yields on AGS -34.1 -33.1 -29.7 -25.5

Asset and other liability movements 0.7 12.9 0.3 -9.4

Cash and deposits(a) -40.9 -55.8 -37.0 -36.4

Advances paid 4.8 3.5 2.3 -4.7

Investments, loans and placements(a) 36.8 65.6 35.3 31.9

Other movements 0.1 -0.4 -0.4 -0.3

Total movements in net debt from 2020-21 Budget to 2021-22 Budget

-85.7 -83.1 -64.8 -45.7

Net debt as at 2021-22 Budget 617.5 729.0 835.0 920.4

(a) AOFM has moved from primarily using term deposits to a cash management account for investing cash for short-term liquidity management. This has resulted in a decrease in investments, loans and placements and an increase in cash and deposits.

Net debt is estimated to rise over the forward estimates, peaking at 40.9 per cent of GDP

at 30 June 2025, before improving over the medium term to reach 37.0 per cent of GDP

at 30 June 2032 (Chart 7.4). At the 2020-21 Budget, net debt was projected to be

39.6 per cent of GDP at 30 June 2031. Net debt at the 2021-22 Budget is projected to be

lower in each year of the forward estimates and medium term than projected at the

2020-21 Budget.

Chart 7.4: Net debt as a share of GDP

25

30

35

40

45

50

25

30

35

40

45

50

2020-2

1

2021-2

2

2022-2

3

2023-2

4

2024-2

5

2025-2

6

2026-2

7

2027-2

8

2028-2

9

2029-3

0

2030-3

1

2031-3

2

% of GDP% of GDP

2021-22 Budget

2020-21 Budget





Further details on changes to the fiscal outlook, including the medium term, since the

2020-21 Budget can be found in Statement 3: Fiscal Strategy and Outlook.

Interest on AGS

The interest costs related to AGS are presented in these statements in both cash and

accrual accounting terms. The difference between the cash interest payments and

accrual interest expense generally relates to the timing of when the interest cost is

recognised.

• Interest payments are recognised in the period when they are paid during the life of

the security.

• Interest expense is recognised in the period in which an expense is incurred during

the life of the security, rather when it is actually paid.

Estimates of the interest payments and expense of AGS on issue include the cost of AGS

already on issue and future AGS issuance.

• The cost of AGS already on issue uses the actual interest rates incurred at the time of

issuance.

• The expected future issuance of AGS is based on the prevailing market rates across

the yield curve at the time of a budget estimates update.

The assumed market yields for the 2021-22 Budget result in a weighted average cost of

borrowing of around 1.6 per cent for future issuance of Treasury Bonds over the forward

estimates, compared with around 0.8 per cent at the 2020-21 Budget. The increased

weighted average cost of borrowing primarily reflects investor confidence in the

strength of Australia’s recovery and the outlook for growth and inflation.

Chart 7.5 shows the yield curve assumptions underpinning the 2020-21 Budget and the

2021-22 Budget. For the 2021-22 Budget, an average of daily spot rates was used to

derive a fixed yield for the forward estimates to minimise the likelihood of locking in

high or low yields during volatile periods.



Chart 7.5: Yield curve assumptions from 2021-22 to 2024-25

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1 Y 2 Y 3Y 4Y 5Y 7Y 10Y 12Y 15Y 20Y 25Y 30Y

%%

2020-21 Budget

2021-22 Budget

Source: AOFM.

The Government’s total interest payments in 2021-22 are estimated to be $17.8 billion, of

which $17.3 billion relates to AGS on issue (Table 7.9).

Interest payments on AGS are expected to remain broadly consistent as a share of GDP

over the forward estimates and broadly in line with estimates at the 2020-21 Budget,

reflecting historically low interest rates.

Table 7.9: Interest payments, interest receipts and net interest payments(a) Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Interest payments on AGS 16,658 17,319 17,519 19,573 20,354

Per cent of GDP 0.8 0.8 0.8 0.9 0.8

Interest payments 17,121 17,789 18,002 20,060 20,834

Per cent of GDP 0.8 0.8 0.8 0.9 0.9

Interest receipts 2,995 3,063 3,080 3,363 3,721

Per cent of GDP 0.1 0.1 0.1 0.1 0.2

Net interest payments(b) 14,126 14,727 14,922 16,698 17,113

Per cent of GDP 0.7 0.7 0.7 0.7 0.7

(a) Interest payments and receipts are a cash measure, with the relevant amount recognised in the period in which the interest payment is made or interest is received.

(b) Net interest payments are equal to the difference between interest payments and interest receipts.



The Government’s interest expense in 2021-22 is estimated to be $19.5 billion, of which

$18.2 billion relates to AGS on issue. Table 7.10 shows the Government’s estimated

interest expense, interest expense on AGS, interest income and net interest expense over

the forward estimates.

Table 7.10: Interest expense, interest income and net interest expense(a)

Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Interest expense on AGS 17,041 18,164 19,085 20,548 21,841

Per cent of GDP 0.8 0.9 0.9 0.9 0.9

Interest expense 19,812 19,519 20,137 21,889 22,969

Per cent of GDP 1.0 0.9 0.9 1.0 1.0

Interest income 2,901 3,621 3,403 3,727 4,094

Per cent of GDP 0.1 0.2 0.2 0.2 0.2

Net interest expense(b) 16,911 15,898 16,734 18,161 18,875

Per cent of GDP 0.8 0.7 0.8 0.8 0.8

(a) Interest expense is an accrual measure, with the relevant amount recognised in the period in which the expense is incurred, but not necessarily paid.

(b) Net interest expense is equal to the difference between interest expenses and interest income.



Climate spending

The Government’s climate spending is shown on an aggregated basis in Table 7.11.

Table 7.11: Climate spending from 2020-21 to 2024-25 Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$b $b $b $b $b

Climate spending(a)(b) 1.4 1.9 1.5 1.9 1.4

(a) Spending in this table is on a headline cash balance basis — that is, payments and net cash flows from investments in financial assets for policy purposes, as well as estimated interest receipts associated with Clean Energy Finance Corporation investments.

(b) These figures do not include expected repayments from the Clean Energy Finance Corporation over the forward estimates.

The key components of climate spending are:

• the Clean Energy Finance Corporation (CEFC), which invests in renewable energy,

energy efficiency and low emissions technologies

• the Australian Renewable Energy Agency (ARENA), which supports research and

development of renewable energy and related technologies

• the Clean Energy Regulator, which administers legislation to reduce carbon

emissions and increase the use of clean energy.

The above figures incorporate the:

• $1.6 billion package in the 2021-22 Budget to fund priority low emissions

technologies

• $1.9 billion package over 12 years from 2020-21 to support the acceleration of

technologies that will deliver lower emissions, increase investment, lower costs and

create jobs to support the economic recovery

• $3.5 billion over 15 years from 2018-19 for the Climate Solutions package, which

provides incentives to support abatement activities across the economy.

Climate spending is higher from 2021-22 onwards in the 2021-22 Budget compared to

the 2020-21 Budget, primarily due to the new measures in the climate package and a

reprofiling of CEFC funding reflecting the impact of COVID-19. Spending is lower in

2020-21 primarily due to the COVID-19 impact of markets conditions for the CEFC and

ARENA.



Impact of climate spending on debt

Climate spending is financed through either receipts or debt. This Statement assumes

that the proportion of climate spending being financed through new debt (as opposed

to receipts) is equivalent to the proportion of total spending financed by debt. This is

shown in Table 7.12.

Table 7.12: Impact on debt — climate spending as a proportion of total spending Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$b $b $b $b $b

Climate spending(a) 1.4 1.9 1.5 1.9 1.4

Total Spending(b) 685 610 616 598 637

Climate spending (per cent of total spending) 0.2 0.3 0.2 0.3 0.2

Change in face value of AGS from previous year(c) 145 134 95 76 65

Contribution to change in face value of AGS from climate spending 0.3 0.4 0.2 0.2 0.1

(a) The calculation of climate spending in this table is on a headline cash balance basis — that is, payments and net cash flows from investments in financial assets for policy purposes, as well as estimated interest receipts associated with the Clean Energy Finance Corporation investments.

(b) The calculation of total spending in this table is on a headline cash balance basis — that is, total payments and net cash flows from investments in financial assets for policy purposes.

(c) Calculations of the change in the face value of AGS are calculated using total AGS on issue.

Statement 8: Forecasting Performance and Sensitivity Analysis | Page 221

Statement 8: Forecasting Performance and Sensitivity Analysis

The economic and fiscal forecasts and projections presented in the 2021-22 Budget incorporate a range of assumptions taken, and judgments made, at the time of preparation. While these figures reflect the best available information at the time, the economic and fiscal circumstances that eventuate may be different from those forecast.

These divergences may occur at any time, however, heightened uncertainty, as a result of the continuing COVID-19 pandemic, could increase the extent to which the forecasts vary from the ultimate outcomes.

This Statement assesses the performance of previous forecasts as well as the inherent risk around the current forecasts using confidence interval analysis. The Statement also presents sensitivity analyses that illustrate the impacts of alternative underlying assumptions.

Contents

Overview ..................................................................................................... 223

Assessing historical forecasting performance ........................................ 224 Economic forecasting performance............................................................................. 224 Tax receipts forecasting performance ......................................................................... 226

Assessing current forecasts through confidence interval analysis ....... 231 Confidence interval analysis in a COVID-19 context .................................................. 231 Economic uncertainty based on historical forecast errors .......................................... 231 Fiscal uncertainty based on historical forecast errors ................................................. 233

Assessing current forecasts through sensitivity analysis ...................... 236 Alternative pathways for commodity exports and the terms of trade .......................... 236 Alternative pathways for productivity growth ............................................................... 239 Alternative pathways for yields .................................................................................... 241


Statement 8: Forecasting Performance and Sensitivity Analysis

Overview

Economic and fiscal forecasts and projections (hereafter referred to as ‘forecasts’ in this

Statement) are important for government decision making. Understanding how

economic and fiscal outcomes might vary from these forecasts contributes to better

decision making and better government policy. While this analysis is always important,

the current environment of heightened uncertainty increases the scope for variance.

This Statement assesses the performance of previous budget forecasts by looking at the

forecast errors over the past two decades. This is achieved by analysing the variance

between historical forecasts and outcomes in each year.

Forecast errors are also used to assess the likely degree of uncertainty around the current

forecasts. This analysis, referred to as confidence interval analysis, assesses the degree

of uncertainty surrounding current forecasts. There are a number of ways to measure

uncertainty. Confidence intervals in this Statement are based on historical forecast

errors. However, the continuing uncertainty surrounding the implications of the

COVID-19 response and recovery means that forecast errors could potentially be larger

than in the past.

Finally, this Statement assesses the sensitivity of the 2021-22 Budget forecasts to changes

in key underlying assumptions.

These assessments are consistent with requirements under the Charter of Budget Honesty

Act 1998. Further, they are consistent with the practice of many other international fiscal

agencies to improve forecasting performance and to raise awareness of the uncertainties

inherent in forecasting.


Page 224 | Statement 8: Forecasting Performance and Sensitivity Analysis

Assessing historical forecasting performance

This section assesses the variance between historical forecasts and outcomes in each year

for real and nominal GDP growth as well as for tax receipts. Economic forecasts are

prepared using a range of modelling techniques, including macroeconomic models,

spreadsheet analysis and accounting frameworks. Tax receipts forecasts are generally

prepared using a ‘base plus growth’ methodology. The last outcome for each head of

revenue is the base to which growth rates are applied, using appropriate economic

parameters. Estimates for the current year also incorporate recent trends in tax

collections.

Forecasts incorporate a number of assumptions and judgments. The accuracy of the

forecasts is influenced by the extent to which the assumptions and judgments

underpinning them prove to be correct, and the reliability of the economic and fiscal

relationships embodied in the models used to produce them. For example, tax receipts

forecasts for a number of income taxes involves assessing whether this tax will be paid

in the year the income is earned, such as for pay-as-you-go withholding tax, or in future

years, such as tax on capital gains for companies and individuals.

Economic forecasting performance

Real GDP forecasts incorporate a number of assumptions, including those regarding

exchange rates, interest rates, commodity prices and population growth. The forecasts

also incorporate judgments about how developments in one part of the economy affect

other parts and how the domestic economy is affected by events in the international

economy.

Prior to the Global Financial Crisis (GFC), the Budget forecasts of real GDP displayed

little evidence of bias. Forecasts of real GDP growth were less accurate in the years

during and immediately after the GFC, given that it was an unforeseen event and there

was heightened uncertainty regarding the economic ramifications. Forecast errors have

been smaller in recent years with the notable exception of 2019-20, reflecting the impacts

of the COVID-19 pandemic on the economy (Chart 8.1).



Chart 8.1: Comparison of forecasts and outcomes for real GDP growth

-1

0

1

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1999-00 2003-04 2007-08 2011-12 2015-16 2019-20

% %

Budget forecasts

Outcomes

Note: Outcome is as published in the December quarter 2020 National Accounts. Forecast is that

published in the Budget for that year. Source: ABS Australian National Accounts: National Income, Expenditure and Product and Budget papers.

Compared with real GDP forecasts, nominal GDP forecasts include a prices component

which is an additional source of uncertainty. This uncertainty stems from the evolution

of domestic prices and wages, prices of imported goods and world prices for Australia’s

exports, including commodities.

Since the early 2000s, nominal GDP forecast errors have reflected the difficulties in

predicting movements in global commodity prices (Chart 8.2). From 2011-12 to 2015-16,

as key commodity prices were falling from their record highs, larger-than-expected falls

in the terms of trade meant that nominal GDP growth was overestimated. The outcomes

for nominal GDP growth from 2016-17 to 2018-19 were higher than forecast in the

Budgets for those years, primarily reflecting stronger-than-expected commodity prices.

The large forecast error in 2019-20 was due to the onset of the COVID-19 pandemic,

which was unknown at the time the forecast was made.



Chart 8.2: Comparison of forecasts and outcomes for nominal GDP growth

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1999-00 2003-04 2007-08 2011-12 2015-16 2019-20

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Budget forecasts

Outcomes

Note: Outcome is as published in the December quarter 2020 National Accounts. Forecast is that

published in the Budget for that year. Source: ABS Australian National Accounts: National Income, Expenditure and Product and Budget papers.

Tax receipts forecasting performance

Generally, there is a strong correlation between the accuracy of the forecasts of nominal

GDP and its components and the forecasts for tax receipts. On average, economic

forecast errors will be magnified in receipts forecast errors, owing to the progressive

nature of the personal income tax system. Chart 8.3 plots the forecast errors for nominal

non-farm GDP growth against the errors for tax receipts growth excluding

capital gains tax (CGT). It shows that where there has been an underestimate of nominal

non-farm GDP growth, tax receipts tend to be underestimated and vice versa.



Chart 8.3: Forecast errors for nominal non-farm GDP growth and taxation receipts growth(a)

2002-032003-04

2004-05

2005-062006-07

2007-08

2008-09

2009-10

2020-21

2010-11

2011-12

2012-132013-14

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2016-17

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Forecast error on nominal non-farm GDP growth

Percentage points Percentage points

2018-19

2019-20

(a) Excludes CGT. Note: Forecast error for 2020-21 is an estimate. Source: ABS Australian National Accounts: National Income, Expenditure and Product, Budget papers and

Treasury.

Over the past two decades, tax receipts forecasts have both under-predicted and

over-predicted outcomes (see Chart 8.4).

Chart 8.4: Comparison of forecasts and outcomes for tax receipts growth

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Outcomes

Budget forecasts

Note: Forecast error for 2020-21 is an estimate. Source: Budget papers and Treasury.



The forecast error for 2020-21 is an estimate based on the revised 2021-22 Budget

forecast. The largest contributor to the forecast error for 2020-21 is individuals and other

withholding taxation, which is estimated to be $10.6 billion (4.9 per cent) higher than

expected in the 2020-21 Budget. This largely reflects stronger-than-expected

employment and faster-than-expected repayment of individuals’ tax debts. Receipts

from GST are estimated to be $9.8 billion (16.3 per cent) above the 2020-21 Budget

estimate, reflecting stronger-than-expected household consumption and private

dwelling investment, and earlier repayment of GST debt than anticipated. Company tax

receipts are expected to be $8.8 billion (10.4 per cent) higher than forecast at the

2020-21 Budget. This is largely driven by higher-than-expected collections from mining

companies due to elevated iron ore prices. These and other variations are discussed

further in Statement 5: Revenue.

Box 8.1 shows the varying volatility of forecast errors across the different heads of

revenue. Of note is that corporate income taxes have larger forecast errors than other

revenue bases which reflects the high concentration of tax paid by a small group of

companies.



Box 8.1: Tax receipts forecast performance in historical context

A stable and predictable tax system can support sound fiscal management. Accurate tax receipts forecasts allow government to make decisions about spending and debt management with confidence. Chart 8.5 shows that over the past 50 years, tax receipts forecasts for all heads of revenue have both under-predicted and over-predicted outcomes, in broadly equal measure (suggesting forecasts over this horizon do not show a material bias). There is, however, significant year-to-year variance in estimate accuracy. Variance of errors for total tax receipts estimates are smaller than those for individual heads of revenue, which highlights the benefits of diversified tax bases in providing revenue stability.

Forecasting errors have been lower on personal income taxes, reflecting the relative predictability of salary and wage income. By contrast, forecasting errors have been far higher for corporate income taxes, as company profits are highly

sensitive to changes in the economy, and concentrated ⎯ with a significant proportion of corporate taxes paid by large companies in a few specific sectors of the economy.

Chart 8.5: Tax receipts forecast errors by head of revenue

Note: Reporting of tax receipts has varied across budgets (1970-71 to 2019-20). Personal income

taxes include individuals and other withholding taxes and fringe benefits tax. Corporate income taxes include company tax, superannuation fund taxes and resource rent taxes. Sales taxes include wholesales sale tax, goods and services tax, luxury car tax and wine equalisation tax. Other indirect taxes include all other taxes, including excise and customs duty.

Source: Budget papers and Treasury.

budget balance positive

budget balance negative

Total tax receipts

Other indirect taxes

Sales taxes

Corporate income taxes

Personal income taxes

-20 -15 -10 -5 0 5 10 15 20

-20 -15 -10 -5 0 5 10 15 20

%

%



Box 8.1: Tax receipts forecast performance in historical context (continued)

As Chart 8.6 shows, the decade average absolute error on total tax receipts has increased over the past 30 years from around 2.3 per cent of budget forecasts in the 1990s to 3.5 per cent of budget forecasts in the 2010s.

Chart 8.6: Tax receipts absolute forecast errors by head of revenue (error as a per cent of the budget forecast), decade average

Note: Forecast error for 2020-21 is an estimate. Source: Budget papers and Treasury.

The increase in the variance of total tax receipts has been driven by increases to the variance of corporate income taxes. The higher variance in forecast accuracy in corporate income taxes is driven by the resources sector, as profits are highly exposed to volatile global commodity prices, and have grown as a share of the economy over the past 20 years. In contrast, personal income taxes have seen declining average absolute errors, and sales and other indirect taxes have largely recorded stable average absolute errors.

If corporate tax revenue continues to be heavily exposed to mining related volatility, total tax receipts can be expected to remain volatile, posing challenges to managing fiscal policy.

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1970s 1980s 1990s 2000s 2010s 2020-21 est.



Assessing current forecasts through confidence interval analysis

Confidence interval analysis in a COVID-19 context

This Statement presents confidence intervals consistent with practice in previous budget

updates. The confidence intervals provide a guide to the degree of uncertainty around

current forecasts if it is assumed that forecast errors are consistent with forecast errors

since 1997-98.21

However, forecast errors in the future will not necessarily be consistent with historical

forecast errors. Forecast errors can be larger than usual during periods of extreme

economic volatility and heightened uncertainty, such as the current

once-in-a-hundred-year pandemic. During such periods, the range of possible outcomes

for economic and fiscal estimates can be considerably wider than normal. The large

forecast errors in 2019-20, due to the unforeseen nature of the COVID-19 pandemic, are

captured in the historical dataset.

However, as the pandemic is still progressing and the outlook remains uncertain, there

is a possibility that the future outcomes fall outside of the typical confidence intervals

presented in this Statement. Delays in the vaccine rollout, the emergence of additional

strains of the virus, or alternatively, a more rapid recovery, are possible significant

events that could cause forecasting errors to be larger than normal. Similarly, the

confidence intervals do not capture potential future policy decisions, including those

that could be implemented to further contain the spread of the virus and to further

support households and businesses.

Economic uncertainty based on historical forecast errors

Based on forecast errors for real GDP in the past, Chart 8.7 shows the degree of variance

around the current forecasts if similar magnitude errors were made again. The chart

suggests that the average annualised growth rate of real GDP in the two years to 2021-22

is expected to be around 2¾ per cent, with the 70 per cent confidence interval ranging

from 2 per cent to 3½ per cent. The 90 per cent confidence interval ranges

from 1½ per cent to 4 per cent. In other words, if forecast errors are similar to those made

over recent years, there is a 90 per cent probability that the average annualised growth

rate of the economy over the two years to 2021-22 will lie in this range.

21 The assumptions behind the confidence intervals presented are based on the methodology

presented in the Treasury Working Paper Estimates of Uncertainty around Budget Forecasts. As in the paper, it is assumed that forecast errors are normally distributed with zero mean and the past errors are representative of the future errors.



Chart 8.7: Confidence intervals around real GDP growth rate forecasts

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Note: The central line shows the outcomes and the 2021‑22 Budget forecasts. Annual growth rates are

reported for the outcomes. Average annualised growth rates from 2019‑20 are reported for 2020-21 onwards. Confidence intervals are based on the root mean squared errors (RMSEs) of Budget forecasts from 1997‑98 onwards. (f) are forecasts.

Source: December quarter 2020 ABS Australian National Accounts: National Income, Expenditure and Product, Budget papers and Treasury.

The confidence intervals around the nominal GDP forecasts are wider than those around

the real GDP forecasts, reflecting the uncertainty around domestic prices and

commodity prices. Average annualised growth in nominal GDP in the two years

to 2021-22 is expected to be around 3¾ per cent, with the 70 per cent confidence interval

ranging from 2½ per cent to 5 per cent. The 90 per cent confidence interval ranges

from 1¾ per cent to 5¾ per cent (Chart 8.8).



Chart 8.8: Confidence intervals around nominal GDP growth rate forecasts

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Note: See note to Chart 8.7. Source: December quarter 2020 ABS Australian National Accounts: National Income, Expenditure and

Product, Budget papers and Treasury.

Fiscal uncertainty based on historical forecast errors

The fiscal estimates contained in the Budget are based on, and are highly sensitive to,

economic and demographic forecasts as well as estimates of the impact of spending and

revenue measures. Changes to any of these factors will affect forecasts for receipts and

payments. As such, this will have a direct impact on the profile of the underlying cash

balance.

Historical variations caused by subsequent policy decisions are excluded as these do not

relate to the forecasting errors presented in this section. However, payments estimates

include the public debt interest impact of policy decisions and a provision for

contingencies.22

22 The impacts of past policy decisions on historical public debt interest through time cannot be

readily identified or estimated. For this reason, no adjustment has been made to exclude these impacts from the confidence interval analysis.



Total receipts

Chart 8.9 shows confidence intervals around the forecasts for total receipts

(excluding GST23). The chart shows that there is considerable uncertainty around

receipts forecasts and that this uncertainty is likely to increase as the forecast horizon

lengthens.

Total receipts (excluding GST) are expected to be around 19.2 per cent of GDP in 2021-22,

with the 70 per cent confidence interval ranging from 18.3 per cent to 20.1 per cent of

GDP. The 90 per cent confidence interval ranges from 17.8 per cent to 20.6 per cent

(Chart 8.9).

Chart 8.9: Confidence intervals around total receipts forecasts(a)

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2021-22(f)

2022-23(f)

% of GDP% of GDP



(a) Excludes GST and includes Future Fund earnings. Note: The central line shows the outcomes and the 2021-22 Budget forecasts. Confidence intervals use

RMSEs for Budget forecasts from the 1997-98 Budget onwards. (f) are forecasts. Source: Budget papers and Treasury.

Payments

Chart 8.10 shows confidence intervals around payments forecasts (excluding GST).

Payments (excluding GST) are expected to be around 24.2 per cent of GDP in 2021-22,

with the 70 per cent confidence interval ranging from 23.8 per cent to 24.6 per cent of

GDP. The 90 per cent confidence interval ranges from 23.6 per cent to 24.9 per cent

(Chart 8.10).

23 GST was not reported as a Commonwealth tax in budget documents prior to the

2008-09 Budget. As a result, GST data have been removed from historical receipts and payments data to abstract from any error associated with this change in accounting treatment.



Automatic stabilisers have operated to provide support during the pandemic.

Demand-driven programs, such as payments to individuals for social welfare, form the

bulk of government expenditure. Forecasts of payments associated with a number of

these government programs depend on forecasts of economic conditions. Due to the

uncertainty in the economic forecasts as a result of the COVID-19 pandemic, Chart 8.10

is likely to understate the range of possible outcomes for payments.

Chart 8.10: Confidence intervals around payments forecasts(a)

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2021-22(f)

2022-23(f)

% of GDP% of GDP



(a) Excludes GST payments. Note: See note to Chart 8.9. Source: Budget papers and Treasury.


The underlying cash balance estimates are sensitive to the same forecast errors that affect

estimates of receipts and payments. Chart 8.11 shows that there is considerable

uncertainty around underlying cash balance forecasts and that this uncertainty is likely

to increase as the forecast horizon lengthens. The underlying cash deficit in 2021-22 is

expected to be 5.0 per cent of GDP, with the 70 per cent confidence interval ranging from

a deficit of 6.0 per cent to 3.9 per cent of GDP. The 90 per cent confidence interval ranges

from a deficit of 6.7 per cent to 3.3 per cent (Chart 8.11).



Chart 8.11: Confidence intervals around the underlying cash balance forecasts

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% of GDP% of GDP



Note: See note to Chart 8.9. Source: Budget papers and Treasury.

Assessing current forecasts through sensitivity analysis

Sensitivity analysis provides an alternative way to examine the uncertainty surrounding

current forecasts. Sensitivity analysis assesses the degree of uncertainty by considering

alternative assumptions for key variables. In doing so, sensitivity analysis can illustrate

the impact of small changes in assumptions on economic and fiscal aggregates.

As discussed earlier in this Statement, there is a greater level of uncertainty around the

forecasts due to the COVID-19 pandemic. The scale of the shock is unprecedented in

most Australians’ lifetimes. As such, it is difficult to estimate the impact that the

COVID-19 pandemic will have on Australia’s economy in the short and medium term.

The sensitivity analysis in this section aims to shed light on the range of outcomes that

could arise under different assumptions.

There are a range of variables that could have different outcomes from those assumed

in the forecasting process. However, the terms of trade, productivity, and yields have

been chosen for the following sensitivity analysis as they are all fundamental to

Australia’s economic and fiscal outcomes and have varied considerably over time.

Alternative pathways for commodity exports and the terms of trade

Non-rural commodity exports play a key role in Australia’s economy. World prices of

non-rural commodities are affected by many factors, are volatile and are uncertain.



This analysis considers the consequences of a permanent 10 per cent increase in world

prices of non-rural commodity exports from 2021-22, relative to baseline levels in the

2021-22 Budget forecasts. It is assumed that the exchange rate appreciates in response to

an increase in non-rural commodity prices.

The 10 per cent increase in the assumed price for non-rural commodity exports is

expected to result in an increase in the terms of trade of 4¾ per cent and a rise in nominal

GDP of ½ of a per cent by 2022-23. The change in the terms of trade varies over time in

line with how non-rural commodity exports shift as a proportion of total exports. The

impact on nominal GDP is stronger than presented in the 2020-21 Budget as the share of

non-rural commodity exports in economic activity has increased.

Table 8.1 shows the illustrative effects of the higher price for commodity exports on

economic parameters, expressed as percentage deviations from the Budget baseline

levels.

Table 8.1: Sensitivity of the economic parameters to a 10 per cent increase in non-rural commodity prices Impact after 1 year (2021-22) Impact after 2 years (2022-23)

per cent per cent

Real GDP 0 0

GDP deflator 3/4 1/2

Nominal GDP 3/4 1/2

Employment 0 - 1/4

Nominal wages 0 0

CPI - 1/4 - 1/4

Company profits 2 3/4 2 3/4

Nominal household consumption - 1/4 - 1/2

Under this analysis, the increase in non-rural commodity export prices leads directly to

higher output prices as measured by the GDP deflator. However, the appreciation in the

exchange rate reduces import prices which flows through to lower consumer price

inflation. Lower consumer price inflation partially offsets the increase in output prices.

Output, investment and export volumes in the mining sector increase in response to

higher non-rural commodity prices. However, the higher exchange rate leads to a

substitution towards imports which offsets the higher output in the mining sector, so

that the impact on real output is neutral.

On the receipts side, an increase in non-rural commodity export prices increases

company profits and, as a result, company tax receipts. The impact on company tax is

larger in 2022-23, partly owing to lags in tax collections and a larger impact on company

profits in the second year of the analysis. This is partially offset by lower employment

resulting in lower individuals and other withholding taxes and lower domestic prices

resulting in lower nominal consumption and, consequently, reductions in indirect taxes.



In practice, the extent of these offsetting price effects on tax receipts would depend on

the monetary policy response of the central bank to the lower growth in domestic prices.

However, under current circumstances, there is limited scope for monetary policy to

offset price effects.

On the payments side, a significant proportion of government expenditure is partially

indexed to movements in costs (as reflected in various price and wage indicators). Many

forms of expenditure, in particular income support payments, are also driven by the

number of beneficiaries.

The overall estimated expenditure on income support payments (including pensions,

unemployment benefits and other allowances) decreases over the two years. This

reflects a small increase in the number of unemployment benefit recipients as a result of

output growth shifting to the less labour-intensive mining industry. The increase in

spending on unemployment benefits is more than offset in the second year by decreased

expenditure on pensions and allowances reflecting slower growth in benefit payment

rates, resulting from slightly lower inflation. At the same time, other payments linked

to inflation are also lower in line with the weaker growth in prices.

Table 8.2 shows the illustrative effects of the higher price for commodity exports on the

underlying cash balance, expressed as nominal deviations from the Budget baseline

levels. The overall impact of the increase in the terms of trade is an improvement in the

underlying cash balance estimates of $3.2 billion in 2021-22 and $3.3 billion in 2022-23.

Table 8.2: Sensitivity of the fiscal forecasts to a 10 per cent increase in non-rural commodity prices 2021-22 2022-23

$b $b

Receipts

Individuals and other withholding taxes 0.0 -1.4

Superannuation fund taxes 0.0 -0.1

Company tax 3.2 4.4

Goods and services tax -0.2 -0.2

Excise and customs duty -0.1 -0.1

Other receipts 0.1 0.1

Total receipts 3.0 2.7

Payments

Income support -0.1 0.1

Other payments 0.1 0.2

Goods and services tax 0.2 0.2

Total payments 0.2 0.6

Public debt interest 0.0 0.1

Underlying cash balance impact 3.2 3.3

Note: Numbers may not sum due to rounding. A positive number denotes an improvement to the underlying cash balance.



The specific impact of a US$10 per tonne free-on-board (FOB) higher or lower iron ore

price is outlined in Box 8.2.

Box 8.2: Sensitivity analysis of iron ore price movements

The impacts of a US$10 per tonne FOB movement in the iron ore price is set out in Table 8.3. This is based on the terms of trade sensitivity analysis above and is calibrated to take into account the share of iron ore in the value of total exports, which can change over time. An increase of US$10 per tonne FOB in the iron ore price results in an increase in nominal GDP of around $6.5 billion in 2021-22 and around $5.7 billion in 2022-23. Similarly, a decrease of US$10 per tonne FOB in the iron ore price results in a decrease in nominal GDP of an equivalent amount.

Table 8.3: Sensitivity analysis of a US$10 per tonne movement in the iron ore price

US$10/tonne FOB(a) fall US$10/tonne FOB

increase

2021-22 2022-23 2021-22 2022-23

Nominal GDP ($billion) -6.5 -5.7 6.5 5.7

Tax receipts ($billion) -1.3 -1.3 1.3 1.3

(a) Prices are presented in FOB terms which exclude the cost of freight.

Sensitivity analysis of the direct impacts of earlier and later falls in the iron ore spot price assumption is in Box 2.5, Statement 2: Economic Outlook.

Alternative pathways for productivity growth

Labour productivity growth is an important determinant of Australia’s potential GDP

growth. It depends on both trends in underlying productivity24 and the capital stock. In

the medium-term projection methodology, underlying productivity growth is assumed

to converge to 1.5 per cent per annum, which is the average growth in labour

productivity over the past 30 years. This convergence begins in the first year of the

forecasts and occurs over a 10-year period.

The COVID-19 pandemic is likely to have lasting economic effects through multiple

channels, and the impacts on productivity are highly uncertain. This analysis examines

the impacts of both a slower and faster pace of convergence to the long-run productivity

growth assumption of 1.5 per cent (Chart 8.12).

24 Underlying productivity is otherwise known as labour-augmenting technical change.



Under the slower convergence analysis, underlying productivity growth is assumed to

converge to the 30-year average over 15 years rather than 10 years. This reduces the

economy’s potential growth rate over the projection period and real GDP grows more

slowly.

By the end of the projection period in 2031-32, the levels of real GDP and nominal GDP

are around 1½ per cent and 1¾ per cent lower, respectively. Slower convergence of

underlying trend productivity growth also flows through to lower wages.

Under the faster convergence analysis, underlying productivity growth is assumed to

converge to the long-run average of 1.5 per cent per annum over five years. This has

broadly symmetrical but opposite effects on the economy compared with the slower

convergence analysis, resulting in higher real GDP, nominal GDP and wages.

Chart 8.12: Real GDP growth, impact of the pace of productivity growth convergence

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Slower convergence

Faster convergence

Medium-term projectionsForecasts

Source: ABS Australian National Accounts: National Income, Expenditure and Product and Treasury.

Under the slower productivity convergence analysis, lower nominal GDP results in

lower projected tax receipts over the 10-year period to 2031-32. Payments are projected

to be slightly lower due to lower prices and wages growth resulting in a decrease in

indexation rates for some payment programs. Public debt interest payments are

projected to be higher. A larger fall in receipts than payments results in a negative

impact on the underlying cash balance projections (Chart 8.13). The underlying cash

balance is 0.5 percentage points of GDP lower at the end of the medium term, compared

with the baseline projection.

The variation in the underlying cash balance has implications for government debt.

Gross debt, measured by the face value of Australian Government Securities on issue, is

projected to be around 3.8 percentage points of GDP higher at the end of the medium



term, compared with the baseline projection. This reflects higher government borrowing

associated with the weaker budget position.

By contrast, the faster pace of productivity growth convergence has a positive impact on

the underlying cash balance projections and gross debt projections, of a similar, but

opposite, magnitude to the impacts of the slower productivity convergence analysis

(Chart 8.13).

Chart 8.13: Underlying cash balance, impact of the pace of productivity growth convergence

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Source: Treasury.

Alternative pathways for yields

Yields on Australian Government bonds reflect the cost of government borrowing.

Despite the recent increase in yields, Australia is still experiencing historically low yields

on government debt. The following analysis illustrates the sensitivity of the underlying

cash balance and gross debt over the next 10 years to different assumptions surrounding

yields.

This analysis illustrates the impact of changes in the yield assumption in isolation. Other

economic projections, including nominal GDP, are the same as those used in the baseline

projections. While it is likely that yields would not move in isolation, by isolating the

yield effect it is possible to see how changes in yields above and beyond other changes

may impact fiscal aggregates. It should be noted however that, from a fiscal

sustainability perspective, it is the difference between nominal yields and nominal

economic growth that matters. If higher yields are accompanied by an economy that is

growing at a faster rate than the rate on the government borrowing, this may be

sufficient to improve debt as a share of the economy over time, all else being equal.



There are a multitude of factors, often impacting in opposite directions, that could affect

current and future yields. Given this uncertainty, a technical assumption for baseline

yields is employed. Nominal yields are assumed to remain fixed over the budget year

and following three years at the levels observed immediately prior to the Budget update.

The 10-year bond yield then converges to a long-run 10-year bond yield of around

5 per cent, consistent with long-run nominal GDP growth. The timeframe for this

transition is 15 years (Chart 8.14). This section examines the consequences of different

yield assumptions.

The lower yield assumption assumes that the 10-year bond yield remains at current

levels over the entire 11-year period rather than beginning to rise after four years, as is

assumed in the baseline assumption. A lower yield assumption is supported by the

observation that yields on Australian Government debt have generally been trending

downwards for several decades. The higher yield assumption assumes that yields

converge immediately from current levels over five years to the long-run yield rate of

around 5 per cent. While the medium- and long-term effects on yields of the COVID-19

pandemic are unclear, changes in expectations for the global recovery or inflation

expectations, among other factors, could drive yields to increase.

Chart 8.14: Alternative transition paths of the 10-year bond yield compared to the Budget baseline assumption

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5-2

6

202

6-2

7

202

7-2

8

202

8-2

9

202

9-3

0

203

0-3

1

203

1-3

2

%%

Baseline

Lower yield assumption

Higher yield assumption

Medium-term assumptionEstimates

Source: Treasury.

Yields affect both government receipts and payments. Yields affect the amount of public

debt interest the Government has to pay on its borrowings, but also have an impact on

projections of the receipts the Government earns on its investments.



Compared with the Budget projections, the lower yield assumption results in a slight

improvement to the underlying cash balance over the medium term. Cumulative

improvements to the underlying cash balance are projected to reduce gross debt

by 2.0 percentage points of GDP at 30 June 2032 (Chart 8.15).

Conversely, the higher yield assumption results in a deterioration in the underlying cash

balance of around 1.0 percentage point of GDP by 2031-32. If yields transitioned to the

long-run yield curve more quickly, gross debt would increase by a projected

6.3 percentage points of GDP compared to the Budget baseline at 30 June 2032

(Chart 8.15).

Chart 8.15: Gross debt, impact of alternative yield assumptions

30

40

50

60

70

30

40

50

60

70

202

0-2

1

202

1-2

2

202

2-2

3

202

3-2

4

202

4-2

5

202

5-2

6

202

6-2

7

202

7-2

8

202

8-2

9

202

9-3

0

203

0-3

1

203

1-3

2

% of GDP% of GDP

Baseline

Higher yield assumption

Lower yield assumption

Medium-term projectionsEstimates

Source: Australian Office of Financial Management and Treasury.

Statement 9: Statement of Risks | Page 245

Statement 9: Statement of Risks

A range of factors may influence the actual budget outcome in future years. The Charter of Budget Honesty Act 1998 requires these factors to be disclosed in a statement of risks in each Budget and Mid-Year Economic and Fiscal Outlook. This Statement outlines general fiscal risks, specific contingent liabilities and specific contingent assets that may affect the budget balances.

Contents

Risks to the Budget — Overview ............................................................... 249 Specific risks to the Budget ......................................................................................... 251

Agriculture, Water and the Environment .................................................. 258 Fiscal Risks ................................................................................................................. 258 Contingent liabilities — unquantifiable ........................................................................ 258

Attorney-General’s ..................................................................................... 259 Fiscal Risk ................................................................................................................... 259 Contingent liabilities — unquantifiable ........................................................................ 260

Defence ....................................................................................................... 260 Fiscal Risk ................................................................................................................... 260 Significant but remote contingencies .......................................................................... 261 Contingent liabilities — unquantifiable ........................................................................ 261 Contingent liability — quantifiable ............................................................................... 262

Education Skills and Employment ............................................................ 262 Fiscal Risk ................................................................................................................... 262 Contingent liability — quantifiable ............................................................................... 263

Page 246 | Statement 9: Statement of Risks

Finance ........................................................................................................ 263 Significant but remote contingency ............................................................................. 263 Contingent liabilities — unquantifiable ........................................................................ 263

Foreign Affairs and Trade .......................................................................... 267 Fiscal Risk ................................................................................................................... 267 Significant but remote contingency ............................................................................. 268 Contingent liability — quantifiable ............................................................................... 268

Health .......................................................................................................... 269 Contingent liabilities — unquantifiable ........................................................................ 269 Contingent asset — unquantifiable ............................................................................. 271

Home Affairs ............................................................................................... 272 Fiscal Risk ................................................................................................................... 272 Significant but remote contingency ............................................................................. 272 Contingent liabilities — unquantifiable ........................................................................ 272

Industry, Science, Energy and Resources................................................ 274 Fiscal Risk ................................................................................................................... 274 Significant but remote contingencies .......................................................................... 274 Contingent liabilities — unquantifiable ........................................................................ 276 Contingent liability — quantifiable ............................................................................... 278

Infrastructure, Transport, Regional Development and Communications ........................................................................................ 279 Fiscal Risk ................................................................................................................... 279 Significant but remote contingencies .......................................................................... 279 Contingent liabilities — unquantifiable ........................................................................ 281 Contingent liabilities — quantifiable ............................................................................ 284

Prime Minister and Cabinet ....................................................................... 284 Contingent liability — unquantifiable ........................................................................... 284 Contingent liability — quantifiable ............................................................................... 284

Treasury ...................................................................................................... 285 Fiscal Risk ................................................................................................................... 285 Significant but remote contingencies .......................................................................... 285 Contingent liabilities — unquantifiable ........................................................................ 287 Contingent liabilities — quantifiable ............................................................................ 289

Veterans’ Affairs ......................................................................................... 291 Fiscal Risk ................................................................................................................... 291


Government loans ...................................................................................... 292

Loan Items .................................................................................................. 296 Agriculture, Water and the Environment ..................................................................... 296 Education, Skills and Employment .............................................................................. 298 Foreign Affairs and Trade ........................................................................................... 299 Health .......................................................................................................................... 300 Industry, Science, Energy and Resources .................................................................. 300 Infrastructure, Transport, Regional Development and Communications .................... 301 Prime Minister and Cabinet ......................................................................................... 302 Social Services ............................................................................................................ 302 Treasury ...................................................................................................................... 303


Statement 9: Statement of Risks

Risks to the Budget — Overview

The forward estimates of revenue and expenses in the 2021-22 Budget incorporate

assumptions and judgments based on the best information available at the time of

publication, together with a range of economic assumptions and other forecasts and

projections.

Events that could affect fiscal outcomes include:

• changes in economic and other parameters, including the path of recovery from the

COVID-19 pandemic in both Australia and overseas, as well as other global economic

developments more broadly

• matters not included in the fiscal forecasts because of uncertainty about their timing,

magnitude or likelihood

• the realisation of contingent liabilities or assets.

The revenue and expense estimates and projections published in the 2021-22 Budget

Papers are based on a range of economic and other parameters. These parameters are

consistent with the domestic and international outlook detailed in Statement 2: Economic

Outlook. While the economic recovery in Australia is well underway, there are still

significant international and domestic risks, including those associated with the

COVID-19 pandemic, and the outlook remains highly uncertain. Economic outcomes

that differ from the parameters used in the Budget represent a material risk to the Budget

estimates. Statement 8: Forecasting Performance and Scenario Analysis examines the impact

on receipts and payments of altering some of the key economic assumptions underlying

the Budget estimates.

A significant portion of government expenditure is for demand-driven programs.

Outcomes for these programs could differ from the estimates and projections due to

changes in economic circumstances and other factors. For example, differing levels of

unemployment will mean expenditure for related social services payments, including

allowances, will continue to vary. Similarly, a number of other support programs,

including the National Disability Insurance Scheme, are demand-driven and outcomes

for these programs may differ from the estimates in the Budget.



In addition, revenue forecasting relies heavily on the observed historical relationships

between the economy, tax bases and tax revenues. Such relationships may shift over

time as the economy changes, particularly following a once-in-a-century shock,

presenting further risk to the estimates. For example, the ability of entities to utilise tax

losses to offset future profits may continue to pose heightened challenges in estimating

the profile for tax receipts over the next few years. Revenue forecasts also incorporate

costings for new policies that typically involve a degree of uncertainty.

The estimates and projections of revenue are also subject to a number of general risks

that can affect taxation collections. These general pressures include the ability of the tax

system to keep pace with changes in the business environment, tax avoidance, court

decisions and Australian Taxation Office rulings, and the outcome of compliance

programs. These pressures may result in a shift in the composition of taxation collected

from the various tax bases and/or a change in the size of the tax base.

Many agencies rely on external revenue to underpin their delivery of a range of outputs.

Estimates included in the Budget for these agencies reflect the best and most up-to-date

information regarding the likely scale of external revenue. However, outcomes in

relation to external revenue are not certain and are subject to risks. In some cases, these

risks are common to a number of agencies and the aggregate impact on the Budget can

extend beyond a single entity. In the current environment, the COVID-19 pandemic

continues to impact on the operations of, and revenue received by, a number of agencies

and remains a source of risk to the Budget.

The forward estimates in the Budget include the impact of all policy decisions, including

those that remain unlegislated. Where legislation is not passed in time to enable

commencement of the measure at the anticipated commencement date, the legislation is

passed with amendments to the original decision, or is rejected, there is a risk of a

variation to the fiscal position outlined in the Budget.

There is also a risk that further Government expenditure may be required to respond to

the direct impacts of the pandemic. The need for, and scale of, this potential expenditure

would depend on the nature of further possible outbreaks and how effectively they are

contained, or future uncertainties related to vaccines.



Specific risks to the Budget

The Budget is subject to a number of contingent liabilities. A large number of these

reflect indemnities, including those relating to the Department of Defence, the Future

Fund Management Agency and Future Fund Board of Guardians, and the

Reserve Bank of Australia. The Australian Government has also issued a number of

guarantees, such as those relating to guarantee schemes for the banking and financial

sector, payments by Export Finance Australia, and the superannuation liabilities of the

Commonwealth Bank prior to its sale to the private sector. Other significant contingent

liabilities relate to uncalled capital subscriptions and credit facilities to international

financial institutions and legal cases concerning the Australian Government. The

Government has robust and conservative strategies in place to reduce its potential

exposure to these contingent liabilities.

Fiscal risks comprise general developments or specific events that may affect the fiscal

outlook. Some developments or events raise the possibility of a fiscal impact. In other

cases, the likelihood of a fiscal impact may be reasonably certain, but will not be

included in the forward estimates because the timing or magnitude is not known.

Table 9.1 outlines how fiscal risks, assets and liabilities and contingent assets and

liabilities are disclosed in the Budget.

Contingent liabilities, contingent assets and other fiscal risks with a possible impact on

the forward estimates greater than $20 million in any one year, or $50 million over the

forward estimates period, are listed in this Statement and summarised in Table 9.2. Some

financial information in the text may not add to totals due to rounding. Information on

contingent liabilities and contingent assets is also provided in the

Australian Government’s annual consolidated financial statements, and in the annual

financial statements of departments and other Government entities.

The Government makes loans for policy purposes. All loans contain some element of

credit risk that they will not be repaid in full, although in many cases this risk is small.

Details of Government loans estimated to exceed $200 million at 30 June 2021 are

included at the conclusion of this Statement.

This year the Statement of Risks is set out by Portfolio (rather than by risk type). This

makes it easier to find information about specific risks. The change in format has not

altered the threshold for disclosure or the detail of the descriptions provided.



Table 9.1: Disclosure of fiscal risks, contingent assets and contingent liabilities, and assets and liabilities in the Budget papers

Category Type(a) Disclosure

Fiscal Risks Fiscal Risks Statement of Risks

Contingent assets and contingent liabilities

Significant contingent assets and liabilities considered remote

Statement of Risks

Unquantifiable contingent assets and liabilities that are improbable but not remote

Statement of Risks

Quantifiable contingent assets and liabilities that are improbable but not remote

Statement of Risks

Contingent assets and liabilities excluded on the basis of immateriality(b)

None

Assets and liabilities Assets and liabilities that are probable and can be reliably measured

Balance sheet(c)(d)

Assets and liabilities that are probable but have an uncertain timing or amount (provisions)

Balance sheet

(a) Items that are described as probable have a 50 per cent or higher chance of occurrence. (b) Only risks with a possible impact on the forward estimates greater than $20 million in any one year, or

$50 million over the forward estimates period, are considered material and disclosed in this Statement. (c) Unearned income from charging guarantee fees is shown as a liability in the balance sheet. (d) Additional disclosure to increase transparency on loans over $200 million is included in the Statement of

Risks.



Table 9.2: Summary of contingent liabilities and contingent assets in the Statement of Risks(a)

Agriculture, Water and the Environment Status

Fiscal Risks

Murray Darling Basin Reform — risk assignment Unchanged

Remediation of Jabiru Township Unchanged

Contingent liabilities — unquantifiable

Commonwealth liabilities in respect of matching payments to industries for research and development contributions

Unchanged

Emergency pest and disease response arrangements Modified

Attorney-General’s Status

Fiscal Risk

Departure of the ACT Government from the Comcare workers’ compensation scheme Unchanged


Native Title costs Unchanged

Prospective investor-State claim against Australia Unchanged

Defence Status

Fiscal Risk

Major operations of the Australian Defence Force in 2021-22 Modified

Significant but remote contingencies

ADI Limited — Officers’ and Directors’ Indemnities Unchanged

Litigation cases Unchanged

Remote contingencies Modified


Cockatoo Island Dockyard Unchanged

Land decontamination, site restoration and decommissioning of Defence assets Unchanged

Non-remote contingent liabilities Removed

Contingent liability — quantifiable

Claims against the Department of Defence Unchanged

Education, Skills and Employment Status

Fiscal Risk

Recovery of inappropriately claimed VET FEE-HELP payments from VET providers Unchanged


ParentsNext program Unchanged

Finance Status

Significant but remote contingency

Australian Naval Infrastructure Pty Ltd — Termination of the Equity Funding Agreement

Unchanged



Table 9.2: Summary of contingent liabilities and contingent assets in the Statement of Risks(a) (continued)

Finance (continued) Status


ASC Pty Ltd — Directors’ and Executives’ Indemnities Unchanged

ASC Pty Ltd — Guarantee of Indemnity from ASC in favour of ASC Shipbuilding Pty Limited

Unchanged

Australian Government domestic property Unchanged

Australian Government general insurance fund — Comcover Unchanged

Australian Naval Infrastructure Pty Ltd — Guarantee in favour of Naval Group Australia

Unchanged

Commonwealth Superannuation Corporation — Immunity and Indemnity Unchanged

Future Fund Management Agency and Future Fund Board of Guardians — Indemnity Unchanged

Googong Dam Unchanged

Indemnities for the Reserve Bank of Australia and private sector banks Unchanged

Indemnities relating to other former asset sales, privatisations and information

technology outsourcing projects

Unchanged

Foreign Affairs and Trade Status

Fiscal Risk

Export Finance Australia — National Interest Account (NIA) Modified


World Food Program — Charter Flights Indemnity Modified


Export Finance Australia Modified

Health Status


Accommodation Payment Guarantee Scheme Unchanged

Advance Purchasing Agreements for COVID-19 vaccine candidates Modified

Australian Red Cross Society — Indemnities Unchanged

Blood and blood products liability cover Unchanged

CSL Ltd Unchanged

Indemnities relating to vaccines Unchanged

Medical Indemnity Exceptional Claims Scheme Unchanged

New South Wales Health Administration Council — Indemnity Unchanged

2032 Brisbane Olympic and Paralympics Games New

Contingent asset — unquantifiable

Legal action seeking compensation Unchanged

Home Affairs Status

Fiscal Risk

Regional Processing Arrangements Unchanged


Indemnities relating to the Air Security Officer Program Unchanged


Australian Victims of Terrorism Overseas Payment Unchanged

Disaster Recovery Unchanged

Garrison, welfare and health services at regional processing countries — liability limit Unchanged

Immigration detention services by state and territory governments — liability limit Unchanged

Immigration detention services contract — liability limit Unchanged




Industry, Science, Energy and Resources Status

Fiscal Risk

Snowy Hydro Limited — Snowy 2.0 Unchanged


Snowy Hydro Limited — Board Members’ Indemnity Unchanged

Snowy Hydro Limited — Termination of the Equity Subscription Agreement Unchanged

Liability for damages caused by space and certain high-power rocket activities Unchanged

Operations and Maintenance of the Northern Endeavour and Associated Infrastructure Modified


Australian Nuclear Science and Technology Organisation — asbestos contamination Unchanged

Australian Nuclear Science and Technology Organisation — Indemnity Unchanged

Former British atomic test site at Maralinga Unchanged

Gorgon liquefied natural gas and carbon dioxide storage project — long-term liability Unchanged

Liability for costs incurred in a national liquid fuel emergency Unchanged

Land decontamination and site restoration for CSIRO property Unchanged

Snowy Hydro Limited — water releases Unchanged

United States Strategic Petroleum Reserve (US SPR) Lease Agreement — Indemnity under certain conditions

Unchanged


Underwriting of Transmission Projects Unchanged

Infrastructure, Transport, Regional Development and Communications Status

Fiscal Risk

Inland Rail — Delivery Unchanged


Inland Rail — Termination of the Equity Financing Agreement Unchanged


Maritime Industry Finance Company Limited — Board Members’ Indemnity Unchanged

Moorebank Intermodal Company Limited — Termination of the Equity Funding Agreement

Unchanged

Moorebank Intermodal Project — Glenfield Waste Site Easement Unchanged

NBN Co Limited — Equity Agreement Removed

Optus Financial Guarantee Modified

Telstra Financial Guarantee Modified

Tripartite deeds relating to the sale of federal leased airports Unchanged

WSA Co Limited — Board Members’ Indemnities Unchanged

WSA Co Limited — Termination of the Equity Subscription Agreement Unchanged




Infrastructure, Transport, Regional Development and Communications — continued

Status


Australian Maritime Safety Authority incident costs Unchanged

Aviation rescue and firefighting potential per- and poly-fluoroalkyl substances contamination

Modified

Indemnity provided to the New South Wales Rural Fire Fighting Service in relation to the Jervis Bay Territory

Unchanged

Moorebank Intermodal Company Limited — Board Members’ Indemnity Unchanged

Moorebank Intermodal Project — Georges River rail crossing Unchanged

NBN Co Limited — Board Members’ Insolvency Indemnity Removed

Service Delivery Arrangement Indemnities — External Territories and Jervis Bay Territory

Unchanged

Contingent liabilities — quantifiable

Australian Government contribution to the East West Link project Unchanged

Australian Government contribution to the Perth Freight Link project Unchanged

Prime Minister and Cabinet Status

Contingent liability — unquantifiable

Basil Dawson and Ors vs Commonwealth of Australia (Community Development Program Class Action)

Unchanged

Northern Territory Stolen Generations Class Action New


Indigenous Land and Sea Corporation — Debt Guarantee Unchanged

Social Services Status

Fiscal Risk

COVID-19 Social Welfare Debt Pause Removed

Treasury Status

Fiscal Risk

Establishment of a Cyclone and related flooding reinsurance pool New


Asbestos Injuries Compensation Fund Modified

Financial Claims Scheme Modified

Guarantee for the National Housing Finance and Investment Corporation Unchanged

Guarantee of state and territory borrowing Modified

Guarantees under the Commonwealth Bank Sale Act 1995 Modified

Reserve Bank of Australia — Guarantee Modified


Government Guarantees for Housing Modified

Indemnities for specialised external advisers during the COVID-19 pandemic Unchanged

International Monetary Fund — Poverty Reduction and Growth Trust Modified

Small and Medium Enterprise Guarantee Scheme Modified




Treasury (continued) Status


Terrorism insurance — commercial cover Unchanged

Australian Taxation Office — tax disputes Modified

International financial institutions — uncalled capital subscriptions Modified

International Monetary Fund Modified

Veterans’ Affairs Status

Fiscal Risk

Defence Service Homes Insurance Scheme Modified

(a) Detailed descriptions of these items are in the following text.



Agriculture, Water and the Environment

Fiscal Risks

Murray Darling Basin Reform — risk assignment

The Australian Government has committed to bridge the gap between the Baseline

Diversion Limit (BDL) and the Sustainable Diversion Limits (SDLs) in the Basin Plan

through water recovery. On 1 July 2019, the SDLs took effect. The Water Act 2007

provides a risk assignment framework whereby entitlement holders with reductions in

water allocations, or changes in the reliability of water allocations (where the gap has

not been bridged and an accredited water resource plan is in place), may be eligible for

a payment from the Commonwealth.

The total cost (if any) of the operation of the risk assignment framework is not able to be

quantified at this time and remains a fiscal risk until the gap between the BDL and SDLs

is fully bridged.

Remediation of Jabiru Township

The Director of National Parks (DNP) holds a revisionary interest under a lease for the

town of Jabiru expiring in 2021. The make good and rehabilitation arrangements of

Jabiru is being negotiated between the DNP, the Northern Territory Government,

Energy Resources of Australia and other stakeholders. Remediation work includes

renewal of essential services, removal of hazardous materials and chemicals, ensuring

structures are compliant to Building Codes and ecological remediation. Expenditure for

the remediation work will be shared across all parties to the arrangements.

The Government agreed to provide $35.0 million toward the remediation of

contaminants in Jabiru as part of the 2019-20 Budget measure Securing Tourism and Jobs

in Kakadu.


Commonwealth liabilities in respect of matching payments to industries for research and development contributions

Under several Acts, the Commonwealth provides matching contributions to encourage

expenditure on research and development (R&D) and to increase the competitiveness

and sustainability of industries within Australia. Matching contributions on eligible

R&D are subject to an annual limit that is calculated based on the determined gross value

of production (GVP cap) for the industries. There will be an R&D excess, which can be

claimable in future years, where the cumulative R&D expenditure is more than the GVP

cap. The Commonwealth’s future liability in respect of the matching contributions is

contingent on the GVP cap and is therefore unquantifiable.



Emergency pest and disease response arrangements

National emergency response arrangements for animal, plant and environmental pest

and disease incursions are largely funded through cost-sharing agreements between

Australian governments and affected agricultural industry bodies. Under the terms of

the emergency response agreements, the Australian Government is typically liable for

50 per cent of the total government funding for a nationally agreed response to a pest or

disease incursion. Funding is provided in the forward estimates for the Australian

Government’s contributions under the emergency response agreements, which are paid

to the state or territory governments undertaking relevant activities.

Recent concurrent incursions have placed considerable pressure on this funding which

may be insufficient to meet the costs of any additional large-scale pest or disease

responses. There are currently 17 national cost-shared emergency responses.

Until 2026-27, more than half of this funding has been allocated to an eradication

program for red imported fire ants in Queensland.

Governments have agreed to develop an Aquatic Emergency Animal Disease Deed

covering aquatic emergency animal diseases. Final consultation will begin shortly with

prospective industry signatories.

The Australian Government may provide financial assistance to an agricultural industry

body by funding its share of an emergency response. These contributions are recovered

from the industry over a period of up to 10 years, usually through an emergency

response levy. The Australian Government may also contribute in situations where an

incursion is not covered by a cost-sharing agreement or where the affected industry

body/bodies is/are not party to an emergency response agreement, depending on the

circumstances of the incursion.

Attorney-General’s

Fiscal Risk

Departure of the ACT Government from the Comcare workers’ compensation scheme

On 1 March 2019, the ACT Government departed the Comcare premium scheme

following the decision by the Safety, Rehabilitation and Compensation Commission to

grant the ACT Government a licence to self-insure its workers’ compensation liabilities

under the Safety, Rehabilitation and Compensation Act 1988.

The licence conditions transfer all workers’ compensation liabilities for

ACT Government employees, with a date of injury on or after 1 July 1989, from

the Commonwealth to the ACT Government. Funding will be transferred to the

ACT Government for outstanding costs relating to claims with a date of injury before



1 March 2019 pending an exit valuation of claims liabilities. The payment will have an

impact on the underlying cash balance.

The Commonwealth has made an initial payment of $76.2 million in 2018-19, which has

been included in the estimates, but the total costs of these arrangements are yet to be

determined.


Native Title costs

The Australian Government will likely be liable for any compensation found to be

payable under the Native Title Act 1993 in respect of compensable acts for which the

Australian Government is responsible. While the High Court’s decision in the

Timber Creek litigation (Northern Territory v Griffiths et al [2019] HCA 7) provides

guidance on the principles for calculating compensation under the Native Title Act, the

Australian Government’s liability cannot be quantified owing to uncertainty about the

number and effect of compensable acts and the value of Native Title affected by those

acts.

Prospective investor-State claim against Australia

The Commonwealth has received requests for consultation in relation to a dispute

pertaining to the Iron Ore Processing (Mineralogy Pty Ltd) Agreement Amendment

Act 2020 (WA) (2020 Amendment Act). These consultations are a pre-condition to the

formal commencement of investor-State dispute settlement proceedings.

If proceedings are commenced and Australia is unsuccessful, Australia would be liable

for any compensation found to be payable to the claimant. Any such potential liability

cannot be quantified at this stage.

Defence

Fiscal Risk

Major operations of the Australian Defence Force in 2021-22

The 2021-22 estimates for the Department of Defence include the cost of major

operations of the Australian Defence Force (ADF) in 2021-22 in Afghanistan, Iraq, Syria,

and the broader Middle East region, as well as the protection of Australia’s borders and

offshore maritime interests. Funding for major Defence operations is considered and

provisioned on a year-by-year basis. The forward estimates at the 2021-22 Budget

include additional funding for these major operations in the 2021-22 year, but do not

provide for further extensions. While the Government has committed to concluding

Operations Highroad and Okra, and finalising the drawdown of ADF personnel in

Afghanistan by September 2021, the Department of Defence will likely have additional

funding requirements for major operations beyond 30 June 2022.




ADI Limited — Officers’ and Directors’ Indemnities

Under the sale agreements for ADI Limited, the Australian Government agreed to

indemnify the Directors, officers and employees of ADI Limited for claims and legal

costs associated with assistance related to the sale of the Australian Government’s shares

in the company. The Australian Government has also provided an indemnity to

ADI Limited for uninsured losses relating to specific heads of claims.

Litigation cases

The Department of Defence (Defence) is involved in a wide range of litigation and other

claims for compensation and/or damages that may result in litigation where the matters

are not able to be finalised by use of negotiation. The litigation includes common law

liability claims, including for personal injury and property damage, investigations of

Defence by Comcare and active prosecutions in relation to alleged breaches of the

Work Health and Safety Act 2011. A number of claims have been received seeking

compensation for alleged loss or damage arising from Defence use of aqueous film

forming foam (AFFF) that contained man-made per- and poly-fluoroalkyl substances

(PFAS). A number of claims have also been received following reviews into the

Australian Defence Force and Defence culture. There is also potential for claims to arise

from the disposal of assets to third parties where such assets contain hazardous

materials or components that have the potential to cause injury.

Remote contingencies

As at 31 March 2021, the Department of Defence carried 152 instances of quantifiable

remote contingent liabilities valued at $4.5 billion and 1,327 instances of unquantifiable

remote contingent liabilities.

These significant remote contingent liabilities are restricted in nature and details are not

given due to commercial sensitivities and/or national security.


Cockatoo Island Dockyard

On 13 October 2001, Cockatoo Island Dockyard (CODOCK) commenced proceedings

against the Australian Government (Department of Defence) in the

New South Wales (NSW) Supreme Court seeking full reimbursement from the

Australian Government for personal injury claims costs incurred by CODOCK after

31 October 1995 in relation to asbestos exposure. Following decisions in the

NSW Supreme Court on 17 December 2004 and 4 February 2005, and the

NSW Court of Appeal on 23 November 2006, CODOCK was awarded a complete

indemnity from the Australian Government for its uninsured exposure to asbestos

damages claims, plus profit of 7.5 per cent. Defence continues to manage reimbursement

of claims costs incurred by CODOCK.



Land decontamination, site restoration and decommissioning of Defence assets

The Department of Defence has made a financial provision for the estimated costs

involved in restoring, decontaminating and decommissioning where a legal or

constructive obligation has arisen. For cases where there is no legal or constructive

obligation, the potential costs have not been assessed and are unquantifiable

contingencies.


Claims against the Department of Defence

The Department of Defence (Defence) has six instances of non-remote, quantifiable

contingent liabilities in respect of claims on Defence valued at $53.8 million.

The estimated figure is determined by conducting an objective analysis of the probable

amount payable for all matters managed by firms engaged by Defence through the

Attorney-General’s Whole of Australian Government Legal Services Panel and those

being handled in-house by Defence Legal Division. However, the exact amount payable

under those claims is uncertain. Defence is defending the claims or is trying to resolve

them by recourse to alternative dispute resolution measures.

Education Skills and Employment

Fiscal Risk

Recovery of inappropriately claimed VET FEE-HELP payments from VET providers

The Australian Government is undertaking compliance action, including court action,

to recover VET FEE-HELP payments from VET providers where loans were issued

inappropriately to students by providers. The Government has legislated a remedy,

which commenced 1 January 2019, for VET FEE–HELP students who incurred debts

under the VET FEE-HELP loan scheme following inappropriate conduct by

VET providers. The Government will undertake recovery activities against

VET providers in cases where the student was ineligible for a VET FEE-HELP loan.

There are potential financial risks to the Commonwealth in the event that it is unable to

recover payments from VET providers where they have closed or entered into

administration or liquidation.

The financial risk to the Commonwealth is currently unquantifiable as it depends on the

receipt and assessment of applications from students, as well as outcomes from the

Government’s investigations into VET providers’ conduct.




ParentsNext program

ParentsNext supports parents to identify their education and employment related goals,

to build their work readiness and plan and prepare for employment by the time their

youngest child starts school.

Under the program, providers accumulate one-off credits which accrue to their

provider’s Participation Fund on commencement of an intensive stream participant.

Currently providers are forecast to spend less than the value of the available credits,

creating an accumulating surplus of credits that present a contingent liability.

The current outstanding credits accumulated from years prior to 2020-21 represent a

contingent liability for the Budget.

Finance


Australian Naval Infrastructure Pty Ltd — Termination of the Equity Funding Agreement

The Australian Government will provide sufficient funding to enable Australian Naval

Infrastructure Pty Ltd (ANI) to meet the direct costs of termination that may be incurred

by ANI in the event that the Commonwealth terminates the Equity Funding Agreement

between the Commonwealth and ANI.


ASC Pty Ltd — Directors’ and Executives’ Indemnities

The Australian Government has provided former Directors of the then Australian

Submarine Corporation Pty Ltd (now known as ASC Pty Ltd — ASC) with indemnities

in relation to any claim against them as a result of complying with the ASC’s obligations

under the Process Agreement between the Electric Boat Corporation (EBC), the

Australian Government and the ASC; any claim against them as a result of complying

with the ASC’s obligations under the Service Level Agreement between the ASC, the

Department of Defence, EBC and Electric Boat Australia; and any claims and legal costs

arising from the Directors acting in accordance with the Board’s tasks and

responsibilities, as defined under the indemnity.

The Australian Government has provided Directors and senior executives of ASC with

indemnities to mitigate personal risk and provide coverage for legal costs related to any

legal proceedings that may arise in relation to the transaction to separate ASC

Shipbuilding Pty Limited from ASC.



ASC Pty Ltd — Guarantee of Indemnity from ASC in favour of ASC Shipbuilding Pty Limited

The Australian Government has agreed to provide a guarantee of an indemnity from

ASC Pty Ltd (ASC) in favour of ASC Shipbuilding Pty Limited (ASC Shipbuilding).

ASC provided an indemnity in favour of ASC Shipbuilding prior to ASC Shipbuilding

being separated from ASC Pty Ltd. This indemnity is intended to cover any liabilities

unknown at the time of separation which may arise after separation. The indemnity is

time limited to seven years.

The guarantee will only be called on in the event that ASC is no longer owned by the

Commonwealth and ASC can no longer meet its obligations under the terms of the

indemnity. It is Government policy to retain ASC as a Government Business Enterprise.

Australian Government domestic property

The Department of Finance owns and is responsible for managing a number of

properties within the Australian Government’s domestic non-Defence portfolio. A small

number of properties have had potential remediation issues identified, which are

currently the subject of further investigation. Except for properties at Lucas Heights in

New South Wales and Cox Peninsula in Northern Territory, none of the remaining

properties with potential remediation issues have had a provision recognised, as neither

the conditions for legal nor constructive obligations have been met, nor is a reliable

estimate of the obligation currently possible.

Australian Government general insurance fund — Comcover

The Department of Finance (Finance) provides insurance and risk management services

to Australian Government general government sector entities. Insurance liabilities are

subject to potential revisions as the total number and size of claims covered is subject to

unforeseen future events.

Finance takes all reasonable steps to ensure that it has appropriate information

regarding its claims exposures, with estimates and parameters regularly updated based

on historical analysis of experience, actuarial calculations and other relevant factors.

Australian Naval Infrastructure Pty Ltd — Guarantee in favour of Naval Group Australia

Under the commercial arrangements in respect of the Future Submarine Program and

the Submarine Construction Yard, Australian Naval Infrastructure Pty Ltd (ANI) is

responsible for the construction of a purpose built Submarine Construction Yard and

providing access to the yard to Naval Group Australia and Naval Group

S.A. (Société Anonyme). As part of these commercial arrangements, the

Australian Government has entered into a Deed of Guarantee and Indemnity with

Naval Group Australia Pty Limited and Naval Group S.A., whereby the Australian



Government has agreed to provide a guarantee in respect of ANI’s financial obligations

under the Submarine Construction Yard Access arrangements with Naval Group

Australia and Naval Group S.A.

Commonwealth Superannuation Corporation — Immunity and Indemnity

The Governance of Australian Government Superannuation Schemes Act 2011 (the

Governance Act) provides for specific immunities for activities undertaken in good faith

by Directors and delegates of the board of the Commonwealth Superannuation

Corporation (CSC), provided these activities relate to the performance of their functions.

Under the Governance Act, other than in cases where the Superannuation Industry

(Supervision) Act 1993 or regulations under that Act do not so permit, any money that

becomes payable by CSC in respect of an action, liability, claim or demand that relates

to the superannuation schemes or funds for which it is responsible, is to be paid out of

the relevant superannuation fund or if there is no fund, the Consolidated Revenue

Fund (CRF). Amounts paid from a superannuation fund are reimbursed to the fund

from the CRF.

Future Fund Management Agency and Future Fund Board of Guardians — Indemnity

The Australian Government has provided certain staff members of the Future Fund

Management Agency (the Agency) and the members (Board members) of the Future

Fund Board of Guardians (the FFBG) with deeds of indemnity. The indemnities are

intended to cover liabilities in excess of the insurance cover (including Comcover) of the

FFBG, its subsidiary entities and the Agency. Board members are indemnified for

liabilities incurred arising out of an act, omission or breach of statutory duty by the

Board or a Board member that relates to the performance of the FFBG’s functions or the

exercise of the FFBG’s powers or that relates to any act, omission or breach of statutory

duty by a Board member as a director or officer of a wholly owned Australian subsidiary

of the FFBG. Certain Agency staff members are indemnified in connection with the

performance of functions or the exercise of powers in their capacity as a director or

officer of investee companies or subsidiaries of the FFBG. Subject to certain exceptions

or qualifications, Board members and Agency staff members are indemnified for

amounts up to the value of the relevant funds.

Board members are not indemnified in respect of any liability owed by them to the FFBG

or its subsidiary, or which results from a contravention of a civil penalty provision of

the Future Fund Act 2006 or the Corporations Act 2001. Agency staff members are not

indemnified to the extent they are indemnified by the relevant investee company or

subsidiary, in respect of any liability owed to the FFBG or the Commonwealth, or to the

extent that they are granted and receive financial assistance under Appendix E of the

Legal Services Directions 2017. Both Board members and Agency staff members are not

indemnified for any liability resulting from conduct they engage in other than in good

faith, to the extent they recover a liability under a Directors and Officers insurance policy



(including Comcover) or in respect of legal costs incurred by them in unsuccessfully

defending or resisting criminal proceedings or proceedings regarding a contravention

of a civil penalty provision.

Googong Dam

On 4 September 2008, a 150-year lease for Googong Dam was signed between the

Australian Government and the Australian Capital Territory (ACT) Government. The

Australian Government is liable to pay just terms compensation if the terms of the lease

are breached by introducing new legislation or changing the Canberra Water Supply

(Googong Dam) Act 1974 in a way that impacts on the rights of the ACT. The lease

includes a requirement for the Australian Government to undertake rectification of

easements or any defects in title in relation to Googong Dam, and remediation of any

contamination it may have caused to the site. It also gives an indemnity in relation to

acts or omissions by the Australian Government.

Indemnities for the Reserve Bank of Australia and private sector banks

In accordance with Government entities’ contracts for transactional banking services,

the Australian Government has indemnified the Reserve Bank of Australia and

contracted private sector banks against loss and damage arising from error or fraud by

an entity, or transactions made by a bank with the authority of an entity.

Indemnities relating to other former asset sales, privatisations and information technology outsourcing projects

Ongoing indemnities have been given in respect of a range of asset sales, privatisations

and information technology (IT) outsourcing projects that have been conducted by the

Department of Finance (Finance), and the former Office of Asset Sales and Commercial

Support and its predecessors. The probability of an action being made under one of these

indemnities diminishes over time.

Details of indemnities in respect of the other asset sales and privatisations have been

provided in previous Budget and MYEFO papers, and previous Annual Reports of

Finance and the Office of Asset Sales and Commercial Support.



Indemnities are listed below. Apart from instances noted elsewhere, Finance does not

currently expect any other action to be taken in respect of these indemnities.

Indemnified body Year(s) raised

ADI Ltd 1998

Albury–Wodonga Development Corporation 2014

Australian Airlines 1991

Australian Industry Development Corporation 1996

Australian Multimedia Enterprise 1997

Australian National Rail Commission and National Rail Corporation Ltd 1997 and 2000

Australian River Co Ltd 1999

Australian Submarine Corporation Pty Ltd 2000

Bankstown Airport Limited 2002

Camden Airport Ltd 2002

ComLand Ltd 2004

Commonwealth Accommodation and Catering Services 1988

Commonwealth Bank of Australia 1993 to 1996

Commonwealth Funds Management and Total Risk Management 1996 to 1997

Employment National Ltd 2003

Essendon Airport Ltd 2001

Federal Airports Corporation’s Airports 1995 to 1997

Health Insurance Commission 2000

Housing Loans Insurance Corporation Ltd 1996

Hoxton Park Airport Limited 2002

Medibank Private Limited 2014

National Transmission Network 1999

Sydney Airports Corporation Ltd 2001

Telstra 1996, 1999 and 2006

Wool International 1999

Foreign Affairs and Trade

Fiscal Risk

Export Finance Australia — National Interest Account (NIA)

There are three financing facilities under the NIA as detailed below.

The Australian Infrastructure Financing Facility for the Pacific (AIFFP) became

operational on 1 July 2019. The AIFFP will provide up to $2.0 billion in facilities

including up to $500 million in grants and the balance in loans to support high priority

infrastructure development in Pacific countries and Timor-Leste. To date, the

Government has agreed to provide loans and grants to support the development of

three infrastructure projects in Palau and the Solomon Islands. As at 31 March 2021,

funding was yet to be drawn down and the facility will have no financial implications

until drawn on.



The Defence Export Facility (DEF) was established to grow Australia’s defence exports

by helping overcome difficulties in accessing private sector finance. The DEF has a

maximum aggregate exposure of US$3.0 billion. As at 31 March 2021, three loans under

the DEF had been agreed for a total maximum value of $228 million, of which

$124.5 million had been drawn down. These three loans are reflected in the Budget

estimates.

The COVID-19 Export Capital Facility (COVID-19 Facility) was announced on

15 April 2020, with a maximum aggregate exposure of $500 million. As at 31 March 2021,

the COVID-19 Facility has agreed to provide finance for a total maximum value of

$57.8 million, these loans are reflected in the Budget estimates.


World Food Program — Charter Flights Indemnity

The Australian Government provided the World Food Program (WFP) an indemnity

with regard to charter flights for the repatriation of Department of Foreign Affairs and

Trade personnel at isolated international missions impacted by COVID-19.

The indemnity applies to aircraft delay costs, loss of baggage, injury to those on-board

the aircraft and exposure to aircraft damage to the extent that any loss is not covered by

existing insurance policies held by the WFP. The risk of the indemnity being called upon

is remote but could result in a liability to the Australian Government of up to $30 million

in 2020-21. The indemnity does not extend into Budget year 2021-22 but continues to

reflect a risk to the 2020-21 estimates.


Export Finance Australia

The Australian Government guarantees the due payment of money that is, or may at

any time, become payable by Export Finance Australia to anybody other than the

Government. As at 31 March 2021, the Government’s total contingent liability was

$2.7 billion. The $2.7 billion contingent liability comprises Export Finance Australia’s

liabilities to third parties ($2.3 billion) and Export Finance Australia’s overseas

investment insurance, contracts of insurance and guarantees ($0.4 billion). Of the total

contingent liability, $2.3 billion relates to Export Finance Australia’s Commercial

Account and $0.4 billion relates to the National Interest Account.



Health


Accommodation Payment Guarantee Scheme

The Accommodation Payment Guarantee Scheme (the Guarantee Scheme) guarantees

the repayment of aged care residents’ refundable accommodation payments (including

refundable deposits and accommodation bonds) if the approved provider becomes

insolvent or bankrupt and defaults on its refund obligations. In return for the payment,

the rights that the resident had to recover the amount from their approved provider are

transferred to the Australian Government so it can pursue the approved provider for

the funds. In cases where the funds are unable to be recovered, the Australian

Government may levy all approved providers holding bonds, entry contributions and

refundable accommodation deposits to meet any shortfall.

Advance Purchasing Agreements for COVID-19 vaccine candidates

The Australian Government has provided indemnities to the suppliers of potential

COVID -19 vaccine candidates, for which the Australian Government has entered into

Advance Purchasing Agreements, covering certain liabilities that could result from the

use of the vaccine. This comprises the University of Oxford vaccine candidate, which is

sponsored by AstraZeneca, the Pfizer vaccine candidate, and the Novavax vaccine

candidate.

The Australian Government has also entered into the Gavi-led COVAX Facility and has

made an upfront payment towards Australia’s purchase of future COVID-19 vaccine

doses through the Facility, part of which will be returned through a risk sharing

arrangement should vaccine candidates not be successful.

The Australian Government has also entered into risk-sharing arrangements with the

Pfizer and Novavax candidates to limit financial exposure to the Commonwealth.

Australian Red Cross Society — Indemnities

Deeds of Agreement between the Australian Red Cross Society (the Red Cross) and the

National Blood Authority in relation to the operation of Australian Red Cross Lifeblood

and the development of principal manufacturing sites in Sydney and Melbourne,

include certain indemnities and a limitation of liability in favour of the Red Cross. These

indemnities cover defined sets of potential business, product and employee risks and

liabilities. Certain indemnities for specific risk events that operate within the term of the

Deed of Agreement are capped, and must meet specified pre-conditions. Other

indemnities and the limitation of liability only operate in the event of the expiry and

non-renewal, or the earlier termination, of the Deed of Agreement relating to the

operation of the Red Cross or the cessation of funding for the principal sites, and only

within a certain scope. All indemnities are also subject to appropriate limitations and



conditions, including in relation to mitigation, contributory fault, and the process of

handling relevant claims.

Blood and blood products liability cover

The National Managed Fund (NMF) was established by a memorandum of

understanding between the Australian Government, Australian Red Cross Lifeblood

(Lifeblood) and state and territory governments to cover potential future claims in

relation to the supply of blood and blood products by Lifeblood. The NMF provides for

liabilities incurred by Lifeblood where other available mitigation or cover is not

available. Under certain conditions, the Australian Government and the state and

territory governments may jointly provide indemnity for Lifeblood through a

cost-sharing arrangement for claims, both current and potential, regarding personal

injury and loss or damage suffered by a recipient of certain blood products. If there are

insufficient funds in the NMF to cover claim costs, the Jurisdictional Blood Committee

will consider a report provided by the National Funds Manager to determine the level

of additional funds required. The Australian Government’s share of any additional

liability is limited to 63 per cent of any agreed net cost.

CSL Ltd

CSL Ltd (CSL) is indemnified against claims made by individuals who contract specified

infections from specified products and against employees contracting asbestos-related

injuries. CSL has unlimited cover for most events that occurred before the sale of CSL

on 1 January 1994, but has more limited cover for a specified range of events that

occurred during the operation of the Plasma Fractionation Agreement from

1 January 1994 to 31 December 2004. Where alternative cover was not arranged by CSL,

the Australian Government may have a contingent liability.

The Australian Fractionation Agreement with CSL Behring (Australia) Ltd (a subsidiary

of CSL), which operated from 1 January 2010 to 31 December 2017, and the National

Fractionation Agreement for Australia with CSL Behring (Australia) Ltd, which has

operated since 1 January 2018, both include a requirement that the National Blood

Authority make a defined payment to CSL Behring (Australia) Ltd, in certain

circumstances only, in the event that the volume of plasma supplied annually to CSL

Behring (Australia) Ltd is less than a specified amount.

Indemnities relating to vaccines

The Australian Government has provided an indemnity to a manufacturer of smallpox

vaccine held by the Australian Government, covering possible adverse events that could

result from the use of the vaccine in an emergency situation. Indemnities have also been

provided to a particular manufacturer of pandemic and pre-pandemic influenza

vaccines for the supply or future supply of influenza vaccines under certain conditions

(including H1N1 and H5N1).



Medical Indemnity Exceptional Claims Scheme

Under the Medical Indemnity Exceptional Claims Scheme, the Australian Government

assumes liability for 100 per cent of any damages payable against practitioners

practising in a medical profession that exceeds a specified level of cover provided by the

practitioner’s medical indemnity insurer (currently $20 million). In 2019, the

Government agreed to expand eligibility of the Scheme through an amendment to the

Midwife Professional Indemnity (Commonwealth Contribution) Scheme Rules 2010

(MPIS) to provide cover for employed private practising midwives who are not eligible

for cover under the MPIS. These arrangements apply to payouts either related to a single

large claim or to multiple claims that in aggregate exceed the cover provided by the

practitioner’s medical indemnity insurer, and would apply to claims notified under

contract-based cover since 2003. From 1 July 2020, the Medical and Midwife Indemnity

Legislation Amendment Act 2019 provides transferred eligibility for this cohort of

midwives and allied health professionals (including registered only midwives) into the

Allied Health High Cost Claims Scheme and Allied Health Exceptional Claims Scheme

within the Medical Indemnity Act 2002.

New South Wales Health Administration Council — Indemnity

The New South Wales Government is indemnified by the Commonwealth against

liabilities or claims arising in relation to the operation of the National Health Funding

Body (NHFB) in two respects:

(i) liabilities or claims arising from acts or omissions of NHFB staff as users of State

Pool account information

(ii) liabilities or claims arising from unauthorised access to the banking services or

system from NHFB premises.

2032 Brisbane Olympic and Paralympics Games

On 24 February 2021, the International Olympic Committee (IOC) entered into exclusive

negotiations with the Queensland Government to host the 2032 Olympic and

Paralympic Games. The Australian Government has committed to fund half the costs of

critical infrastructure for the Games. The support will be subject to successful

candidature and shared governance arrangements with the Queensland Government.

The Commonwealth has also provided a range of guarantees to the IOC for provision of

government services in support of Brisbane’s candidature to host the Games at no cost

to the Organising Committee for the Olympic Games.

Contingent asset — unquantifiable

Legal action seeking compensation

The Department of Health is engaged in legal action against certain pharmaceutical

companies to recover savings denied to the Commonwealth because interim injunctions



granted to these companies in unsuccessful patent litigation delayed generic versions of

drugs being listed on the Pharmaceutical Benefits Scheme and thereby delaying

statutory and price disclosure related price reductions for these drugs.

Home Affairs

Fiscal Risk

Regional Processing Arrangements

The Australian Government supports the Governments of Nauru and

Papua New Guinea (PNG) to provide support and services to transferees residing in

Nauru and PNG under regional processing arrangements. Any significant changes in

the number of transferees, the arrangements that underpin the provision of those

services, relevant litigation or legislative changes, may incur a cost or generate cost

reductions which are unquantifiable at this time.


Indemnities relating to the Air Security Officer program

The Australian Government has indemnity agreements with Australian airlines that

agree to allow Air Security Officers on board their aircraft. The indemnity agreements

limit the Government’s exposure to a maximum of $2 billion per incident. The indemnity

applies to the extent that any loss is not covered by existing relevant insurance policies

held by the airline(s) and only applies where the airline(s) can prove that an action on

the part of an Air Security Officer under or in connection with the Air Security Officer

program caused a loss.


Australian Victims of Terrorism Overseas Payment

The Social Security Amendment (Supporting Australian Victims of Terrorism Overseas)

Act 2012 inserted Part 2.24AA into the Social Security Act 1991 to create a scheme for

providing financial assistance to Australian residents who are victims of an overseas

terrorist act that has been declared by the Prime Minister. The scheme commenced on

22 January 2013. Under the scheme, Australian residents harmed (primary victims) or

whose close family members die as a direct result of a declared terrorist act (secondary

victims) are eligible to claim one-off payments of up to $75,000. As acts of terrorism are

unpredictable, and the declaration of overseas terrorists acts discretionary, the cost of

the scheme is unquantifiable.

Disaster Recovery

The Australian Government provides funding to states and territories through the

Australian Government cost-sharing arrangements (Natural Disaster Relief and

Recovery Arrangements (NDRRA) and the Disaster Recovery Funding Arrangements



(DRFA) to assist with natural disaster relief and recovery costs. A state or territory may

claim NDRRA/DRFA funding if a natural disaster occurs and state or territory relief

and recovery expenditure for that event meets the requirements set out in the

arrangements.

The current forward estimates for the NDRRA/DRFA include preliminary estimates for

past events, based on the best information available at the time of preparation.

Preliminary estimates of the cost of a disaster and the timing of expenditure are subject

to change. The total cost of relief and recovery from these past events may not be

completely realised for some years.

For major disasters, the Australian Government may approve payments to individuals

under the Social Security Act 1991. These include the Australian Government Disaster

Recovery Payment and Disaster Recovery Allowance. As disasters and their impacts are

unpredictable, the cost relating to these payments from future disasters is unquantifiable

and therefore not included in the forward estimates.

The Government also maintains an Emergency Response Fund (ERF) to provide

additional resourcing to assist with the preparation for, and response to, natural

disasters. Reflecting the unpredictability of natural disasters the cost of any payments

from the ERF are unquantifiable and not included in the Budget estimates.

Garrison, welfare and health services at regional processing countries — liability limit

The Department of Home Affairs (Home Affairs) entered into a contract with Canstruct

International Pty Ltd (Canstruct), which commenced on 1 November 2017, for the

provision of garrison and welfare services on Nauru in relation to regional processing

arrangements. The contract includes a provision that limits Canstruct’s liability to

Home Affairs to a maximum of $20 million for any single occurrence and $50 million in

aggregate for the term of the contract. The limitation of liability does not apply to

personal injury, breach of third-party IP rights, damage to third-party property or

malicious acts or omissions attributable to Canstruct.

Immigration detention services by state and territory governments — liability limit

Home Affairs has negotiated arrangements with a number of state and territory

governments for the provision of various services (including health, education and

policing services) to immigration detention facilities and people in immigration

detention. Some jurisdictions sought indemnification by the Australian Government for

the provision of those services. These agreements, as listed below, contain

unquantifiable indemnities relating to any damage or loss incurred by state and territory

governments arising out of, or incidental to, the provision of services under the

proposed agreements.



Service streams

Jurisdictions Health Education Police

WA $5 million per claim or event

Uncapped liability $5 million per claim or event

NSW N/A $5 million per claim or event

$5 million per claim or event

VIC Uncapped liability Uncapped liability $5 million per claim or event

QLD/TAS/ACT/NT N/A $5 million per claim or event


SA $5 million per claim or event



Home Affairs negotiates arrangements as necessary for the provision of correction

services. The indemnity provided to states and territory governments under these

arrangements is no more than $30 million per event.

Immigration detention services contract — liability limit

Home Affairs entered into a contract with Serco Australia Pty Ltd (Serco), which

commenced on 11 December 2014, to deliver immigration detention services in Australia

on behalf of the Australian Government at immigration detention facilities. The contract

term limits Serco’s liability to Home Affairs to a maximum of any insurance proceeds

recovered by Serco up to a value of $330 million for the term of the contract. Serco’s

liability is unlimited for specific events defined under the contract.

Industry, Science, Energy and Resources

Fiscal Risk

Snowy Hydro Limited — Snowy 2.0

The Australian Government has committed up to $1.38 billion in additional equity to

Snowy Hydro Limited to support the delivery of the Snowy 2.0 pumped hydro project.

Snowy 2.0 will improve the security and reliability of the National Electricity Market by

providing reliable, dispatchable power and large-scale energy storage. Project risks for

both projects include construction delays, cost pressures, and cash flow forecasts.

These pressures are being mitigated through close management of the delivery program

and engagement with key stakeholders.


Snowy Hydro Limited — Board Members’ Indemnity

The Australian Government has provided an indemnity for each of the Directors of

Snowy Hydro Limited (SHL) to protect them against certain claims relating to their

employment as Directors. Until the indemnity agreements are varied or ceased, they will

remain as contingent and unquantifiable liabilities.



Snowy Hydro Limited — Termination of the Equity Subscription Agreement

The Australian Government will provide sufficient funding to cover costs and liabilities

incurred by Snowy Hydro Limited (SHL) for delivery of Snowy 2.0, capped to the total

remaining undrawn equity, in the event that the Commonwealth terminates the Equity

Subscription Agreement between the Commonwealth and SHL.

Liability for damages caused by space and certain high power rocket activities

Under the United Nations Convention on International Liability for Damage Caused by

Space Objects, the Australian Government may be liable to pay compensation for

damage caused to nationals of other countries by space objects launched from Australia,

or by Australian nationals overseas. For activities approved under the Space (Launches

and Returns) Act 2018 (the Act), the Government also accepts liability for damage

suffered by Australian nationals, to a maximum value of $3 billion above an insured

level.

To address this risk, in order to have a space or high power rocket activity approved

under the Act, the responsible party is required to insure against, or take financial

responsibility for, damage to third parties. The amount of insurance or financial

responsibility is capped at $100 million.

The Act provides for amounts lower than $100 million depending on the risk profile of

the activity. A maximum probable loss methodology is also available to calculate the

amount of insurance or financial responsibility.

Operations and Maintenance of the Northern Endeavour and Associated Infrastructure

The Government has engaged Upstream Production Solutions (Upstream PS) to

maintain, operate and prepare the Northern Endeavour Floating Production Storage

and Offtake facility (FPSO) for disconnection. Under the contract, the parties release one

another for damage to their own property or injury to their own personnel, to the extent

that the harm is not caused by the other party’s gross negligence or wilful misconduct.

Generally, each party’s liability to the other is limited to 7.5 per cent of the contract

budget (although this limit does not apply in some circumstances, as specified in the

contract), but this limit may be adjusted by 10 per cent if the contract budget is increased

by 10 per cent or more. The Government has also agreed to indemnify Upstream PS

against claims made by third parties for damage to property or personal injury, where

the loss of or damage was caused by the Commonwealth’s performance of the contract

(or its negligence or failure in performing the contract), or the condition of the FPSO and

associated subsea and subsurface infrastructure. The Government has also provided an

indemnity against any pollution or loss of well control related to the FPSO, except to the

extent caused by Upstream PS’s gross negligence or wilful misconduct. The liability cap

does not apply to these indemnities.



The Government has obtained Protection and Indemnity, Facility Damage and Control

of Well Insurance and also taken out membership with oil spill response agencies. These

will limit the Government’s risk and financial exposure.

The risk of an incident is remote. The FPSO is being maintained with safety critical

maintenance carried out, limited oil in storage and no further oil production taking

place. The additional works to prepare the FPSO for disconnection are not considered

to materially increase the risk.

The secured creditor of Timor Sea Oil & Gas Australia Pty Limited (TSOGA) and

Northern Oil & Gas Australia Pty Limited (NOGA), Castleton Commodities Merchant

Asia Co. Pte. Ltd., has commenced legal proceedings in the Supreme Court of

New South Wales (NSW) against the Commonwealth, TSOGA and NOGA seeking

orders for the delivery of the FPSO, the appointment of a receiver to realise the value of

the property and a declaration that it is entitled to a first charge over the proceeds.


Australian Nuclear Science and Technology Organisation — asbestos contamination

The Australian Nuclear Science and Technology Organisation (ANSTO) site contains

asbestos in a number of buildings and in the soil at the Lucas Heights campus. Although

there is potential for claims being made in relation to asbestos related diseases, the

potential costs have not been assessed and are unquantifiable contingencies.

Australian Nuclear Science and Technology Organisation — Indemnity

On 21 April 2016, the then Minister for Industry, Innovation and Science signed a Deed

of Indemnity between the Commonwealth Government, ANSTO and ANSTO Nuclear

Medicine Pty Ltd (ANM), under which the Government formally agreed to indemnify

ANSTO and ANSTO Officers, and ANM and ANM Officers, from any loss or liability

arising from claims caused by ionising radiation. This Deed will remain in place until

April 2026.

Former British atomic test site at Maralinga

The Australian Government is responsible for 14 unlimited indemnities relating to the

Maralinga Rehabilitation Project (1995-2000). In November 2009, the Australian

Government agreed to the handback of the former nuclear test site — Maralinga section

400—to the site’s Traditional Owners, Maralinga Tjarutja. Under the terms of the

Maralinga Nuclear Test Site Handback Deed, the Australian Government has indemnified

the Maralinga Tjarutja people and the South Australian Government in respect of claims

arising from test site contamination.



Gorgon liquefied natural gas and carbon dioxide storage project — long-term liability

The Australian and Western Australian (WA) Governments have provided an

indemnity to the Gorgon Joint Venture Partners (GJV) against independent third-party

claims (relating to stored carbon dioxide) under common law following closure of the

carbon dioxide sequestration project. The claims are subject to conditions equivalent to

those set out in the Offshore Petroleum and Greenhouse Gas Storage Act 2006.

The WA Government has indemnified the GJV, and the Australian Government has

indemnified the WA Government for 80 per cent of any amount determined to be

payable under that indemnity.

Liability for costs incurred in a national liquid fuel emergency

The Australian Government has responsibility for the Liquid Fuel Emergency Act 1984

(the Act). In addition, the Australian Government and state and territory governments

have entered into an inter-governmental agreement in relation to a national liquid fuel

emergency (IGA 2006). Under the IGA, the Australian Government agrees to consult

IGA parties on a likely shortage and, if necessary after those consultations, to advise the

Governor-General of the Commonwealth of Australia to declare a national emergency

under the Act.

The IGA also contains three areas where the Australian Government may incur expenses

in the unlikely event of a national liquid fuel emergency. These relate to the direct costs

of managing a liquid fuel emergency and include the possibility of the Australian

Government reimbursing the state and territory governments for costs arising from their

responses, and potential compensation for industry arising from Australian

Government directions under the Act.

Land decontamination and site restoration for CSIRO property

The Commonwealth Scientific and Industrial Research Organisation (CSIRO) has made

a financial provision for the estimated costs in restoring and decontaminating land

where a legal or constructive obligation has arisen. For cases where there is no legal or

constructive obligation, the potential costs have not been assessed and are

unquantifiable contingencies.

Snowy Hydro Limited — water releases

On 29 June 2018, Snowy Hydro Limited became a wholly Commonwealth owned

company following the Commonwealth’s acquisition of the New South Wales (NSW)

and Victorian Governments’ shares. At the time of corporatisation of Snowy Hydro

Limited on 28 June 2002, the Australian, NSW and Victorian Governments, as the then

owners, indemnified the company for liabilities arising from water releases in the Snowy

River below Jindabyne Dam, where these releases are in accordance with the Snowy

Water Licence and related regulatory arrangements agreed between the



three governments, including the Snowy Water Inquiry Outcomes Implementation

Deed (SWIOID) 2002. The indemnity applies to liabilities for which a claim is notified

within 20 years from 28 June 2002.

As the sole owner, the Commonwealth is now wholly liable for the indemnity. However,

NSW must pay 100 per cent of the amount claimable where the liability is a result of the

Snowy Water Licence being inconsistent with the SWIOID or with a direction from NSW

that is inconsistent with principles for managing water releases from Jindabyne Dam, as

agreed by the Australian, NSW and Victorian Governments.

United States Strategic Petroleum Reserve (US SPR) Lease Agreement — Indemnity under certain conditions

On 3 June 2020, the Australian Government entered into a commercial leasing

agreement with the United States (US) Department of Energy (DoE). This agreement

facilitates the storage of Australia’s first-ever government-owned strategic fuel reserve

in the US Strategic Petroleum Reserve (SPR).

Under the lease agreement, the Australian Government indemnifies the US SPR for any

liabilities incurred (subject to certain exceptions) arising from or related to: the

transportation of crude oil to the SPR; third-party claims made in connection with the

drawdown or delivery of the oil; and customs duties, fees or other charges which may

arise from the Australian Government’s non-compliance with US Customs Law.


Underwriting of Transmission Projects

The Australian Government is working with the New South Wales (NSW),

South Australian and Victorian Governments to provide early works underwriting

support to the HumeLink, Project EnergyConnect and Victoria to NSW Interconnector

West (VNI West) projects.

The Australian Government and NSW Government will each underwrite 50 per cent of

the early works of the proposed HumeLink transmission line (up to a total of

$65.7 million). The underwriting of the early works project costs for Project

EnergyConnect and VNI West will be capped at a maximum amount, but the specific

terms of the underwriting arrangements will not be finalised until negotiations are

complete with relevant parties.

Conditions for the underwritings to be called upon are likely to relate to the projects not

achieving regulatory and approval requirements, but are also dependent on the final

underwriting arrangements negotiated.



Infrastructure, Transport, Regional Development and Communications

Fiscal Risk

Inland Rail — Delivery

The Australian Government has committed up to $14.5 billion in equity for the

Australian Rail Track Corporation (ARTC), enabling ARTC to deliver the Inland Rail

project which provides a direct, high-performance freight rail corridor between

Melbourne and Brisbane, as well as a new freight corridor between Brisbane and Perth

(via Parkes).

The ARTC will finance Inland Rail with a combination of Commonwealth equity

investment, private debt and internal cash flows. A Public Private Partnership will be

established to design, build, finance and maintain the complex Toowoomba to Kagaru

(Brisbane) section of the project, including major tunnelling works.

Project risks include securing jurisdictional support, construction delays, cost pressures

and realising revenues. These pressures are being mitigated through close management

of the delivery program and engagement with key stakeholders and jurisdictions.

Project costs will be settled through the completion of procurements for all sections of

Inland Rail following all final design, planning and environmental approvals.


Inland Rail — Termination of the Equity Financing Agreement

The Australian Government will provide sufficient funding to cover all costs and

liabilities incurred by the Australian Rail Track Corporation (ARTC) for delivery of

Inland Rail in the event that the Commonwealth terminates the Equity Financing

Agreement between the Commonwealth and the ARTC.

Maritime Industry Finance Company Limited — Board Members’ Indemnity

Indemnities for Maritime Industry Finance Company Limited (MIFCO) board members

were provided to protect them against civil claims relating to their employment and

conduct as Directors. MIFCO was placed into voluntary liquidation in November 2006

and was deregistered on 24 April 2008. The indemnity is not time-limited and continues

even though the company has been liquidated. Until the indemnity agreements are

varied or brought to an end, they will remain as contingent and unquantifiable liabilities.



Moorebank Intermodal Company Limited — Termination of the Equity Funding Agreement

The Australian Government has provided an indemnity to cover all costs and liabilities

that may be incurred by Moorebank Intermodal Company Limited (MIC) in the event

that the Commonwealth terminates the Equity Funding Agreement between the

Commonwealth and MIC.

Moorebank Intermodal Project — Glenfield Waste Site Easement

The Australian Government has provided an indemnity to cover all costs and liabilities

that may be incurred by the Grantor (the private sector owner of the Glenfield Waste

Site) of any easement for the rail spur going across the Glenfield Waste Site, to the extent

such costs or liabilities are caused or contributed to by the Commonwealth or its agents.

Optus Financial Guarantee

The Australian Government has provided a guarantee in respect of NBN Co’s financial

obligations to Optus Networks Pty Ltd, Optus Internet Pty Limited, Optus Vision Media

Pty Limited and SingTel Optus Pty Ltd (collectively, Optus) under the Optus HFC

Subscriber Agreement (the Agreement). An amended version of the Agreement came

into effect on 22 January 2019. The Guarantee continues to apply to that Agreement. The

Agreement extends for the period of the National Broadband Network roll-out in Optus

Hybrid Fibre Coaxial (HFC) areas. The Australian Government is only liable in the event

NBN Co does not pay an amount when due under the Agreement. As at

28 February 2021, NBN Co had generated liabilities covered by the Agreement which

are estimated at an amount less than $200.0 million. There is a low risk that a claim

would be made under the Guarantee. The Guarantee will terminate in 2021.

Telstra Financial Guarantee

The Australian Government has provided Telstra Corporation Limited (Telstra) a

guarantee in respect of NBN Co’s financial obligations under the Definitive Agreements.

The Agreements were amended on 14 December 2014. The Guarantee was not amended

at that time and it continues in force in accordance with its terms in respect of the

amended Definitive Agreements. The liabilities under the Definitive Agreements

between Telstra and NBN Co arise progressively during the roll-out of the National

Broadband Network as Telstra’s infrastructure is accessed and Telstra’s customers are

disconnected from its copper and Hybrid Fibre Coaxial cable networks. The Australian

Government is only liable in the event NBN Co does not pay an amount when due under

the Definitive Agreements. As at 28 February 2021, NBN Co had generated liabilities

covered by the Guarantee estimated at $10.7 billion. The Guarantee will terminate when

NBN Co achieves specified credit ratings for a period of two continuous years and

either:

• the company is capitalised by the Commonwealth to the agreed amount or



• the Communications Minister declares, under the National Broadband Network

Companies Act 2011, that, in his or her opinion, the National Broadband Network

should be treated as built and fully operational.

Tripartite deeds relating to the sale of federal leased airports

The tripartite deeds between the Australian Government, the airport lessee company

and financiers, amend airport (head) leases to provide for limited step-in rights for

financiers in circumstances where the Australian Government terminates the head lease

to enable the financiers to correct the circumstances that triggered such a termination

event. The tripartite deeds may require the Australian Government to pay financiers

compensation as a result of terminating the (head) lease, once all Australian

Government costs have been recovered. The Australian Government’s contingent

liabilities are considered to be unquantifiable and remote.

WSA Co Limited — Board Members’ Indemnities

The Australian Government has provided an indemnity for each of the Directors of

WSA Co Limited (WSA Co) to protect them against certain claims relating to their

employment as Directors. Unless the indemnity agreements are varied or brought to an

end, they cease to apply from the date the Commonwealth has fully satisfied its

obligations to subscribe for equity in WSA Co pursuant to the WSA Co Equity

Subscription Agreement.

WSA Co Limited — Termination of the Equity Subscription Agreement

The Australian Government is required to cover all costs and liabilities that may be

incurred by WSA Co in the event that the Commonwealth terminates the Equity

Subscription Agreement between the Commonwealth and WSA Co.


Australian Maritime Safety Authority incident costs

In the normal course of operations, the Australian Maritime Safety Authority (AMSA)

is responsible for the provision of funds necessary to meet the clean-up costs arising

from ship-sourced marine pollution and, in all circumstances, is responsible for making

appropriate efforts to recover the costs of any such incidents. The

Australian Government meets costs that cannot be recovered from such incidents. It is

not possible to estimate the amounts of any eventual payments that may be required in

relation to these incident costs. AMSA has established a pollution response financial

capability of $50 million, backed by liquid investment funds, to provide funding should

the overall clean-up costs exceed the liability limit of the ship-owner.



Aviation rescue and firefighting potential per- and poly-fluoroalkyl substances contamination

The Department of Infrastructure, Transport, Regional Development and

Communications (the Department) has identified a number of sites in Australia

potentially contaminated with per- and poly-fluoroalkyl substances (PFAS) previously

contained in firefighting foams.

The identified contaminants do not naturally break down in the environment and

several have been listed on the Stockholm Convention as persistent contaminants.

Australian health and environmental agencies have set a range of standards for

environmental protection and precautionary health measures.

Up to 37 airport sites are potentially contaminated with PFAS (20 federally leased

airports and 17 regional airports) relating to the Commonwealth provision of

fire-fighting services. The Department is undertaking PFAS investigations at these

airports to understand the risks and develop corresponding management plans for any

identified PFAS contamination. Airservices Australia (Airservices) is also implementing

a national PFAS management program, which includes PFAS investigations at 21 airport

sites. The costs of potential long-term management options cannot be quantified at this

time.

For federally leased airports, Airport Lessee Companies (ALCs) are responsible for

environmental management of their airport sites. Airport leases indemnify the

Commonwealth in relation to damages or injury to the environment, including in

respect of costs and claims arising due to such damages or injury.

Moorabbin and Canberra ALCs have formally requested that the Airport Environment

Officer issue remediation orders to Airservices for PFAS contamination under the

Airports (Environment Protection) Regulations 1997. Brisbane Airport Corporation has also

commenced legal proceedings in the Queensland Supreme Court against Airservices in

relation to legacy PFAS contamination from Airservices’ firefighting activities at the

airport.

Indemnity provided to the New South Wales Rural Fire Fighting Service in relation to the Jervis Bay Territory

The Department of Infrastructure, Transport, Regional Development and

Communications (the Department) engages the New South Wales Rural Fire Service

(NSW RFS) to provide fire management in the Jervis Bay Territory (JBT). To provide

these services, the NSW RFS requires the Australian Government to provide an

uncapped indemnity against any actions or claims resulting from the actions of the NSW

RFS while providing fire management services in the JBT. The indemnity covers the

same period of time for which NSW RFS is engaged to provide the fire management

services. The likelihood of an event occurring that may result in a liability for the

Australian Government is assessed as remote. The risk of a liability is mitigated through



a range of risk management measures, including the Jervis Bay Territory Rural Fires

Ordinance 2014, the establishment of a JBT Emergency Management Committee (EMC),

a fire management plan prepared and implemented by the EMC, NSW RFS staff training

and professional qualifications and the Department actively managing the Service Level

Agreement with the NSW RFS.

Moorebank Intermodal Company Limited — Board Members’ Indemnity

The Australian Government has provided certain indemnities for the Directors and

Officers of the Moorebank Intermodal Company Limited to protect them against civil

claims relating to their employment and conduct. These indemnities were provided to

Directors when the Board was first established, however not to subsequent Directors.

The indemnities apply to the period of appointment as Directors or Officers of the

company. Until the indemnity agreements are varied or brought to an end, they will

remain as contingent and unquantifiable liabilities.

Moorebank Intermodal Project — Georges River rail crossing

The Australian Government has provided an indemnity to cover costs and liabilities that

may be incurred by the State of New South Wales arising under the

Native Title Act 1993 (Cth) associated with the construction of a rail bridge over the

Georges River to the Moorebank Intermodal Terminal. The likelihood of costs being

incurred is considered remote and potential costs are unquantifiable.

Service Delivery Arrangement Indemnities — External Territories and Jervis Bay Territory

Since 1992, the Australian Government has been entering into Service Delivery

Arrangements with the Western Australian (WA) Government for the provision of

services to the Indian Ocean Territories of Christmas Island and the

Cocos (Keeling) Islands. The Australian Government has provided certain indemnities

for the WA Government, their respective officers, agents, contractors and employees

against civil claims relating to their employment and conduct as officers.

From 1 July 2016, the New South Wales (NSW) Government has provided a range of

services to the Norfolk Island community through a Heads of Agreement.

The Australian Capital Territory (ACT) provides a number of services to the

Jervis Bay Territory under Memoranda of Understanding. The Australian Government

has provided certain indemnities for the ACT Government authorities and officials in

respect of the delivery of services to the Jervis Bay Territory.

The likelihood of an event occurring that may result in a liability for the

Australian Government has been assessed as remote and the risks are currently

mitigated through the training and professional qualifications of the staff of these

agencies.




Australian Government contribution to the East West Link project

The Australian Government remains committed to the construction of the East West

Link despite the decision of the Victorian Government not to proceed with the project.

To this end, the Australian Government will provide $4 billion to the

first Victorian Government willing to build the East West Link and is therefore

recording this commitment as a contingent liability in the Budget.

Australian Government contribution to the Perth Freight Link project

The Australian Government remains committed to the extension of the Roe Highway,

despite the decision of the Western Australian (WA) Government not to proceed with

the project.

To this end, the Australian Government will provide $1.2 billion to the

first WA Government willing to construct the Roe 8 and 9 extensions and is therefore

recording this commitment as a contingent liability in the Budget.

Prime Minister and Cabinet

Contingent liability — unquantifiable

Basil Dawson and Ors vs Commonwealth of Australia (Community Development Program Class Action)

Aspects of the Community Development Program are part of a class action that is before

the Federal Court. Costs associated with this litigation (if any) and any potential related

future litigation are not quantifiable until the matter is determined by the Court or

otherwise resolved.

Northern Territory Stolen Generations Class Action

A class action against the Commonwealth has been lodged in the NSW Supreme Court

seeking compensation for Stolen Generations survivors who were removed from their

families in the Northern Territory prior to self-government, and family members living

with them at the time who were affected by the removals. Costs associated with this

litigation (if any) and any potential related future litigation are not quantifiable until the

matter is determined by the Court or otherwise resolved.


Indigenous Land and Sea Corporation — Debt Guarantee

The Indigenous Land and Sea Corporation (ILSC) provides a guarantee to a major bank

that has provided a $120 million facility to its wholly-owned subsidiary, Voyages

Indigenous Tourism Australia Pty Ltd. As at 30 June 2020, the estimated outstanding

balance of the facility will total $102.5 million.



Treasury

Fiscal Risk

Establishment of a Cyclone and related flooding reinsurance pool

The Government has announced its intention to provide a $10 billion annually reinstated

Government guarantee to the Australian Reinsurance Pool Corporation (ARPC) in

support of administering a reinsurance pool for cyclones and related flooding. The

details of the intended guarantee will be subject to consultation and further Government

consideration, but is expected to be in effect from 1 July 2022 and may be called upon in

the event of a large cyclone and/or related flood, or a year with a high number of

cyclones and related flooding, to ensure the ARPC can pay any liabilities.

The reinsurance pool will be designed to be cost-neutral to Government over time, based

on the predicted cost and frequency of cyclone events. The estimated value and range

of calls on the guarantee is unquantifiable at this stage of policy development. Further

modelling on the potential costs of the guarantee will be undertaken before 1 July 2022.


Asbestos Injuries Compensation Fund

In February 2016, the Commonwealth agreed to assume one-third of the default risk

associated with a $320 million New South Wales (NSW) Government loan to the

Asbestos Injuries Compensation Fund (AICF), contingent on all states and territories

agreeing to assume the remaining default risk. States and territories agreed to assume

the remaining default risk in the period following the publication of the 2016-17 Budget.

The AICF provides compensation to Australian asbestos disease related claims against

former subsidiaries of the James Hardie Group, and is funded on an ongoing basis

through contributions from the James Hardie Group. NSW provided a $320 million loan

facility in 2010 to enable AICF to continue to pay compensation as lump sums, rather

than on an instalment basis.

The Commonwealth ceased issuing loans from this facility from 9 December 2020.

Financial Claims Scheme

The Financial Claims Scheme provides depositors of authorised deposit-taking

institutions (ADIs) and claimants of general insurers with timely access to their funds in

the event of a financial institution failure.

Under the Banking Act 1959, the scheme provides a mechanism for making payments to

depositors under the Australian Government’s guarantee of deposits in ADIs. Payments

are capped at $250,000 per account holder per ADI. It is estimated that deposits eligible

for coverage under the Financial Claims Scheme were $1.1 trillion at 1 December 2020,



compared to an estimated $1.0 trillion at 30 June 2021. This largely reflects overall

deposit growth in the financial system due to fiscal policies that were implemented to

support the economy during COVID-19 and consumer caution resulting in an increase

in the savings rate.

Under the Insurance Act 1973, the scheme provides a mechanism for making payments

to eligible beneficiaries with a valid claim against a failed general insurer. It is not

possible to estimate the amounts of any eventual payments that may be required in

relation to general insurance claims.

In the very unlikely event of an ADI or general insurer failure, any payments made

under the Financial Claims Scheme would be recovered through the liquidation of the

failed institution. If there was a shortfall in the amount recovered through the

liquidation of the failed institution, a levy could be applied to the relevant industry to

recover the difference between the amount expended and the amount recovered in the

liquidation.

The Australian Prudential Regulation Authority (APRA) is responsible for

administration of the Financial Claims Scheme. Under the Financial Claims Scheme, any

payments to account holders with eligible protected accounts or eligible claimants

would be made from APRA’s Financial Claims Scheme Special Account. Under the

legislation, upon activation, up to $20 billion per institution would be available to meet

Financial Claims Scheme payments and up to $100 million for administration costs

per institution.

Guarantee for the National Housing Finance and Investment Corporation

The Australian Government guarantees the due payment of money payable by the

National Housing Finance and Investment Corporation (NHFIC) to anybody other than

the Government.

The NHFIC Board must not allow NHFIC to enter into a transaction that would result

in the total guaranteed liabilities of the NHFIC, and any outstanding amount which

NHFIC has borrowed from the Government, to exceed $3 billion unless approved by the

Government.

Guarantee of state and territory borrowing

The Australian Government announced on 25 March 2009 that a voluntary, temporary

guarantee would be put in place over state and territory borrowing. The Guarantee of

state and territory borrowing commenced on 24 July 2009 and closed on

31 December 2010. New South Wales and Queensland were the only states that chose to

participate in the Guarantee.

Securities covered by the Guarantee will continue to be guaranteed until these securities

either mature or are bought back and extinguished by the issuer.



The expected liability under the Guarantee is remote and unquantifiable. Australian

Government expenditure would arise under the Guarantee only in the unlikely event

that a state failed to meet its obligations with respect to a commitment that was subject

to the Guarantee and the Guarantee was called upon. In such a case, the Government

would likely be able to recover any such expenditure through a claim on the relevant

state at a future date. The impact on the Government’s Budget would depend upon the

extent of the default and the state’s ability to meet the Government’s claim.

As at 31 March 2021, the face value of state and territory borrowings covered by the

Guarantee was $1.2 billion, down from $1.3 billion at 31 October 2020.

Guarantees under the Commonwealth Bank Sale Act 1995

Under the terms of the Commonwealth Bank Sale Act 1995, the Australian Government

has guaranteed various superannuation and other liabilities: $131.7 million is

attributable to liabilities of the Commonwealth Bank of Australia as at 31 March 2021;

and $4.7 billion is attributable to liabilities of the Commonwealth Bank Officers’

Superannuation Corporation as at 31 March 2021.

Reserve Bank of Australia — Guarantee

The Australian Government guarantees the liabilities of the Reserve Bank of Australia,

measured as the Bank’s total liabilities excluding capital, reserves, and Australian

Government deposits. The major component of the Bank’s liabilities is Australian

banknotes on issue. As at 31 March 2021, banknotes on issue amount to $96.8 billion,

and the total Guarantee is $319.0 billion.


Government Guarantees for Housing

The Australian Government has a number of programs to support individuals to enter

the housing market sooner.

The First Home Loan Deposit Scheme (the Scheme) is designed to support eligible first

home buyers to build or purchase a first home sooner by providing a guarantee to

participating lenders for up to 15 percent of the property purchase price. The Scheme

began on 1 January 2020.

The New Home Guarantee is designed to support eligible first homes buyers seeking to

build a new home or purchase a newly built home by providing a guarantee to

participating lenders for up to 15 percent of the property purchase price. A second

tranche of 10,000 New Home Guarantees will be made available between 1 July 2021

and 30 June 2022.



The Family Home Guarantee is designed to support single parents with dependants

seeking to enter, or re-enter, the housing market. The Family Home Guarantee will

commence on 1 July 2021, subject to the passage of legislation.

For the three programs listed above, the Australian Government guarantees the

liabilities as they arise. Guaranteed liabilities arise where a lender’s loss is covered by

the guarantee. The lender then makes a claim against the guarantee and the National

Housing Finance and Investment Corporation (NHFIC) accepts the claim. Given

liabilities under the Scheme are met by a standing appropriation, the NHFIC is not

required to maintain capital and reserves to meet the liabilities associated with these

programs.

Indemnities for specialised external advisers during the COVID-19 pandemic

The Government has provided indemnities for certain specialised external advisers

engaged to provide advice on emerging markets issues related to COVID-19.

Indemnities were provided to mitigate personal risk and provide coverage for costs

related to any legal proceedings that may arise in relation to the provision of that advice.

The indemnities apply for the period of engagement as advisers and for claims that are

notified within 12 years after cessation of the adviser’s engagement. Until the indemnity

agreements are varied or expire, they will remain as contingent and unquantifiable

liabilities.

International Monetary Fund — Poverty Reduction and Growth Trust

On 26 October 2020, the Australian Government entered into an agreement to make a

line of credit available to the International Monetary Fund (IMF) under the

Poverty Reduction and Growth Trust (PRGT) through to 31 December 2029. The PRGT

provides concessional financial support to low-income countries to help them achieve,

maintain, or restore a stable and sustainable macroeconomic position. PRGT funds are

drawn upon by the IMF as needed and will be repaid in full with interest.

Through this agreement, the Government made available Special Drawing Rights (SDR,

the IMF’s unit of account) 500 million (approximately A$932.0 million at 1 April 2021)

to loan to the IMF under the PRGT. As at 31 March 2021, SDR 1,902,857 (approximately

A$3.5 million) has been drawn down, leaving SDR 498,097,143 (approximately

A$928.4 million) remaining available to the IMF under the PRGT.

Small and Medium Enterprise Guarantee Scheme

The Australian Government will guarantee 50 per cent of loans issued under the

Coronavirus Small and Medium Enterprises (SME) Guarantee Scheme provided by

eligible lenders to SMEs.



The Australian Government will also guarantee 100 per cent of loans issued under the

Show Starter Loan Scheme and provided by eligible lenders (up to $90 million of loans).

The Show Starter Loan Scheme is being administered alongside the Coronavirus SME

Guarantee Scheme.

On 11 March 2021, the Australian Government announced a range of initiatives as part

of a new $1.2 billion support package targeting the businesses, workers and regions still

impacted by COVID-19. This includes an expansion and extension of the Coronavirus

SME Guarantee Scheme. The SME Recovery Loan Scheme is designed to support the

economic recovery, and to provide continued assistance, to firms previously on

JobKeeper. On 27 March 2021, the Government extended this to SMEs that were

negatively economically affected by the floods in eligible Local Government Areas

in March 2021. The Government will work with lenders to ensure that eligible firms

continue to have access to finance to maintain and grow their businesses.

Loans under the SME Recovery Loan Scheme will be available from 1 April 2021 until

31 December 2021. The SME Recovery Loan Scheme is being administered alongside the

Coronavirus SME Guarantee Scheme and Show Starter Loan Scheme.

The Australian Government will guarantee 80 per cent of loans issued under the

SME Recovery Loan Scheme provided by eligible lenders to SMEs.

Terrorism insurance — commercial cover

The Terrorism Insurance Act 2003 established a scheme for terrorism insurance covering

damage to commercial property, including associated business interruption and public

liability (extended in 2017 to mixed-use and high-value residential buildings).

The Australian Reinsurance Pool Corporation (ARPC) uses reinsurance premiums paid

by insurers to meet its administrative expenses, to maintain a pool of funds and to

purchase reinsurance to help meet future claims. The Australian Government

guarantees to pay any liabilities of the ARPC, but the responsible Minister (or delegate)

must declare a reduced payout rate to insured entities if the Government’s liability

would otherwise exceed $10 billion.


Australian Taxation Office — tax disputes

At any point in time the Australian Taxation Office is involved in a range of dispute

resolution processes, including litigation, relating to tax disputes.

Details of the outcome of dispute resolution processes are uncertain until a court ruling

is made and/or an agreement is reached with the taxpayer. As a result, in most cases it

is not possible to estimate with any reliability the likely financial impact of current



disputes. The estimated aggregate value of tax in dispute as at 31 March 2021, for which

a provision has not been made, is $6.1 billion.

Outcomes of dispute resolution processes are included in the Commissioner of

Taxation’s Annual Report each year. This may include disputes resolved through

objections, settlements and court and tribunal decisions. It may also include amounts

owed by taxpayers that are subject to dispute but not finalised.

International financial institutions — uncalled capital subscriptions

The Australian Government has held an uncalled capital subscription in the

International Bank for Reconstruction and Development (IBRD) since 1947.

In November 2020, Australia’s uncalled capital subscription increased by US$0.8 billion

bringing the total to approximately US$4.4 billion (estimated value A$5.9 billion as at

31 March 2021).

The Australian Government has also held an uncalled capital subscription in the

European Bank for Reconstruction and Development (EBRD) since 1991. Australia’s

uncalled capital subscription to the EBRD totals around EUR237.5 million (estimated

value A$393.9 million as at 31 March 2021).

The Australian Government has further held an uncalled capital subscription in the

Asian Development Bank (ADB) since 1966. Australia’s uncalled capital subscription to

the ADB totals around US$7.0 billion (estimated value A$9.3 billion as at 31 March 2021).

The Australian Government has further held an uncalled capital subscription in the

Multilateral Investment Guarantee Agency of US$26.5 million (estimated value

A$35.4 million as at 31 March 2021).

The Asian Infrastructure Investment Bank (AIIB) was established on 25 December 2015.

The Australian Government has subscribed to shares in the AIIB, which includes an

uncalled capital subscription. Australia’s uncalled capital subscription to the AIIB totals

around US$3.0 billion (estimated value A$4.0 billion as at 31 March 2021).

None of these international financial institutions has ever drawn on Australia’s uncalled

capital subscriptions.

International Monetary Fund

Australia has made a line of credit available to the International Monetary Fund (IMF)

under its New Arrangements to Borrow (NAB) since 1998. This is a contingent loan to

help ensure that the IMF has the resources available to maintain stability in the global

economy. The value of Australia’s NAB credit arrangement now stands at around

SDR4.4 billion (estimated value A$8.3 billion at 31 March 2021). On 8 October 2020, the

Treasurer advised the IMF that Australia consented to the new NAB Decision and on 26



January 2020, the IMF Executive Board approved amendments to the NAB decision,

including increasing the credit arrangements of all participants and extending it from

1 January 2021 to 31 December 2025.

In addition, Australia has made available approximately SDR 2.0 billion (approximately

A$3.7 billion at 31 March 2021) via a contingent bilateral loan to the IMF, known as a

Bilateral Borrowing Agreement (BBA). This contingent bilateral loan is on terms

consistent with other bilateral loans and note purchase agreements between the IMF and

other contributing countries. The contingent bilateral loan will be drawn upon by the

IMF only if needed to supplement the IMF’s quota and NAB resources and any drawings

on loans would be repaid in full with interest. The BBA is made available to the IMF

through 31 December 2023 with the possibility of a one-year extension.

Veterans’ Affairs

Fiscal Risk

Defence Service Homes Insurance Scheme

The Defence Service Homes Insurance Scheme (the Scheme) was established in 1919

under the Defence Service Homes Act 1918. The Scheme offers personal insurance products

to eligible serving Australian Defence Force members, veterans and widow(er)s.

It underwrites home building insurance and offers a range of personal insurance

products (such as contents and motor vehicle insurance) underwritten by QBE Insurance

(Australia) Limited.

The Scheme is funded by premiums collected from policy holders, commissions from

QBE and returns on investments. Due to the nature of insurance, the Scheme’s financial

performance can be volatile from year to year. Last year saw a significant increase in

claims due to extreme weather events (including bushfires, hailstorms and floods).

The Scheme manages the volatility of the insurance cycle by holding an appropriate

level of capital (i.e. reserves) consistent with the obligations placed on insurers through

the relevant regulatory regime. The Scheme also has a comprehensive reinsurance

program in place, reducing the exposure to loss by passing part of the risk of loss to a

group of reinsurers. Nevertheless, there remains a risk that additional Government

contributions could be required should these reserves be insufficient to cover the

liabilities of the scheme.



Government loans

Loans are recorded as financial assets and accordingly the amounts advanced and

repaid do not normally affect the budget aggregates of fiscal balance and underlying

cash balance. Loans that are concessional (lower than market interest rate) or are agreed

to be written off, result in an impact on the fiscal balance.

The Government makes loans for policy purposes. All loans contain some element of

credit risk that they will not be repaid in full, although in many cases this risk is small.

Table 9.3 summarises Government loans estimated to exceed $200 million at

30 June 2021.



Tab

le 9

.3:

Su

mm

ary

of

Au

str

ali

an

Go

vern

men

t lo

an

s e

xceed

ing

$20

0 m

illi

on

En

tity

Lo

an

am

ou

nt (

a)

($m

) B

orr

ow

er

Inte

rest

rate

T

erm

S

tatu

s(b

)

Ag

ricu

ltu

re,

Wate

r an

d t

he

En

vir

on

men

t

Dro

ught

rela

ted a

nd farm

fin

ance

concessio

nal lo

ans —

Agriculture

400

Sta

te G

overn

me

nts

(th

at,

thro

ugh t

heir d

eliv

ery

agencie

s,

on-le

nd t

o e

ligib

le f

arm

busin

esses)

Vario

us

Vario

us

Unchanged

Fa

rm I

nvestm

ent

Loans, D

rought Loans,

AgriS

tart

er

Loans, A

gB

iz D

rought Loans

and A

gR

ebuild

Loans

2,4

61

Elig

ible

Austr

alia

n f

arm

busin

esses a

nd r

ela

ted s

ma

ll busin

esses, via

Regio

nal

Investm

ent

Corp

ora

tio

n

Up t

o 1

.92 p

er

cent

Up t

o 1

0 y

ears

M

odifie

d

Ed

uc

ati

on

, S

kills

an

d E

mp

loym

en

t

Hig

her

Educatio

n L

oan a

nd V

ET

Stu

dent

Loans P

rogra

m

52,9

66

Elig

ible

tert

iary

educatio

n

stu

dents

C

onsum

er

Price

Index (

CP

I) g

row

th

9.3

years

* U

nchanged

Tra

de S

upport

Loans P

rogra

m

812

Elig

ible

Austr

alia

n A

ppre

ntices

CP

I gro

wth

Unchanged

Fo

reig

n A

ffair

s a

nd

Tra

de

Papua N

ew

Guin

ea L

iquefie

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| Bu

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o. 1

Loan Items

Agriculture, Water and the Environment

Drought related and farm finance concessional loans — Agriculture

As at 30 June 2020, the fair value of farm business, drought and dairy farm related loans

is estimated to total $586.6 million. This includes:

Drought Concessional Loans Scheme: This scheme provided loans to drought-affected

farm businesses for debt restructuring, operating expenses and drought recovery and

preparedness activities. The scheme commenced in June 2014 as a loans scheme

available for two years and operated in Queensland, Victoria, New South Wales,

South Australia, Western Australia, Tasmania and the Northern Territory.

The Government extended the application period until 31 October 2016 to cover the

period until the new 10-year Farm Business Concessional Loans Scheme was able to

commence on 1 November 2016. The Government also extended the Western Australian

application period for the Drought Concessional Loans Scheme until 30 June 2017.

As at 1 February 2021, the interest rate was 1.22 per cent, reviewed on a six-monthly

basis and revised in accordance with material changes in the five-year Commonwealth

bond rate. Loans have a maximum term of five years, with an extenuating circumstances

clause in some jurisdictions, which allows a maximum two-year extension to the loan at

commercial rates.

Drought Recovery and Dairy Recovery Concessional Loans Scheme(s): The drought

recovery component of this scheme provided loans to farm businesses affected by

unprecedented drought or, where applicable, Queensland farm businesses directly

impacted by the combined effects of drought and the mid-2011 disruption to live cattle

exports to Indonesia. The loans funded planting and restocking activities and associated

expenses, when seasonal conditions allowed. The loans were available from

January 2015, and in 2014-15, operated in Queensland and New South Wales. In 2015-16,

drought recovery concessional loans were available in Queensland, New South Wales,

South Australia and Tasmania.

The dairy recovery component of this scheme provided concessional loans to dairy farm

businesses affected by the 2016 reduction in farm gate milk prices by Murray Goulburn,

Fonterra and National Dairy Products. Loans were available for debt restructuring,

providing new debt for operating expenses or productivity enhancement activities, or a

combination of these purposes. Dairy recovery concessional loans became available in

Victoria, New South Wales, South Australia and Tasmania from June 2016. Applications

closed on 31 October 2016. A dairy recovery concessional loan product was available

under the Farm Business Concessional Loans Scheme until 30 June 2018.




basis and revised in accordance with changes in the 10-year Australian Government

bond rate. Loans have a maximum term of 10 years with interest-only payments

required for the first five years. Principal and interest repayments will be made in the

remaining five years of the loan term.

Farm Business Concessional Loans Scheme: This scheme provided three types of

concessional loans ⎯ drought assistance, dairy recovery and business improvement.

This scheme was designed to cover a farmer’s short-term needs when income was tight

and to supplement, rather than replace, commercial finance. Loans under the scheme

were first available in November 2016. Applications for loans under the scheme closed

on 30 June 2018.

Drought assistance concessional loans were available in Queensland, New South Wales,

Victoria, South Australia, Tasmania and the Northern Territory. Loans were available

for debt restructuring, operating expenses, drought preparedness activities or

drought-recovery activities or a combination of these purposes.

Business improvement concessional loans were available in Queensland,

New South Wales, Victoria, South Australia, Tasmania and the Northern Territory.

Loans were available for eligible Farm Household Allowance (FHA) recipients who

were recovering from financial hardship and had exhausted, or would exhaust their

FHA 1,095-day income support entitlement by 30 June 2018. These loans were for debt

restructuring only.

Dairy recovery concessional loans were available in New South Wales, Victoria,

South Australia and Tasmania to eligible suppliers of Murray Goulburn, Fonterra and

National Dairy Products. Loans were available for debt restructuring, providing new

debt for operating expenses, productivity enhancement activities or a combination of

these purposes.


basis and revised in accordance with changes in the 10-year Australian Government

bond rate. Loans have a maximum term of 10 years.

Farm Finance Concessional Loans Scheme: This scheme provided concessional loans

to eligible farm businesses experiencing financial difficulties that were considered

commercially viable in the long term, and were for productivity enhancements and debt

restructuring. Applications for Farm Finance Concessional Loans closed on 30 June 2015.




basis and revised in accordance with material changes in the five-year Commonwealth

bond rate. Loans have a maximum term of five years, with an extenuating circumstances

clause in some jurisdictions, which allows a maximum two-year extension to the loan,

on commercial terms.

Farm Investment Loans, Drought Loans, AgriStarter Loans, AgBiz Drought Loans and AgRebuild Loans

The Regional Investment Corporation commenced operations on 1 July 2018.

There are three loan products currently available to farm businesses ⎯ Farm Investment

Loans, Drought Loans, and AgriStarter Loans (launched on 1 January 2021). In addition,

AgBiz Drought Loans are also available for small businesses. AgRebuild Loans

(North Queensland flood) were available to 30 June 2020.

All loan products provide concessional loans to eligible businesses that are experiencing

financial difficulties and are considered financially viable in the long term (additional

criteria apply for each product and terms and conditions may vary). All products are for

farm businesses, with the exception of AgBiz Drought Loans which are for small

businesses that provide primary production related goods and services for drought

affected farm businesses.

As at 1 February 2021, the variable interest rate was 1.77 per cent. Interest rates are

revised on a six monthly basis in line with any material changes to the Australian

Government 10 year bond rate, where a material change is taken to be a movement of

more than 10 basis points (0.1 per cent).

Interest is not payable during the first two years of the AgRebuild Loan, or on the

Drought Loans and AgBiz Drought Loans for loan applications received before

30 September 2020.

Loans have a maximum term of 10 years.

Education, Skills and Employment

Higher Education Loan and VET Student Loans Program

The Higher Education Loan Program (HELP) and the VET Student Loans (VSL)

program are income-contingent loan programs that assist eligible tertiary education

students with the cost of their fees. As at 30 June 2021 the fair value of debt outstanding

is estimated to be $53 billion. The fair value takes into account the concessionality of

HELP loans and makes an allowance for debt not expected to be repaid.



Debts outstanding for more than 11 months are indexed annually using the

Consumer Price Index. The Australian Taxation Office collects repayment of these debts

through the tax system. Repayment of debts commence when an individual debtor’s

income reaches the repayment threshold.

There were 2,851,725 HELP debtors as at 30 June 2020. The repayment term of a

HELP debt can only be determined for people who have fully repaid their debt. As at

the end of June 2020, the average time taken to repay HELP debts was 9.3 years.

Trade Support Loans Program

The Trade Support Loans Program is an income-contingent, concessional loan program

that assists eligible Australian Apprentices by providing financial support of up to

$21,542 to assist with the costs of living, learning and undertaking an apprenticeship,

and helping apprentices to focus on completing a trade qualification.

Eligible Australian Apprentices can access up to $718.07 per month in the first year of

their apprenticeship, $538.56 per month in the second year, $359.04 per month in the

third year and $179.52 per month in the fourth year.

The loan amounts provided are higher in the early years of training to compensate for

lower wages. The lifetime limit of $21,542 was indexed on 1 July 2020 using the

Consumer Price Index and will continue to be indexed annually on 1 July to maintain

its real value.

As an incentive to encourage completion of training, apprentices who successfully

complete their apprenticeships are eligible for a 20 per cent discount on their loan.

The loans become repayable at the same thresholds as the Higher Education Loan

Program, which is $46,620 for the 2020-21 income year. This is a demand-driven

program.

Foreign Affairs and Trade

Papua New Guinea Liquefied Natural Gas

The loan in support of the Papua New Guinea Liquefied Natural Gas (PNG LNG) project

involves the development, construction, operation and maintenance of a LNG

liquefaction plant, gas production and processing facilities, onshore and offshore

pipelines, associated ancillary facilities and infrastructure. As at 30 June 2021, the fair

value of the loan amount outstanding is estimated to total $198.8 million.



Health

Zero Real Interest Loans

The Zero Real Interest Loans program provided loans to assist aged care providers to

build or extend residential aged care services in areas of high need. Loans provided

under the program attract an interest rate equivalent to the change in the All Groups

Consumer Price Index (updated quarterly). Four funding rounds were completed, with

the final round of offers finalised in 2013. No further loans will be allocated under the

program. The total amount owing to the Commonwealth as at 30 June 2021 is estimated

to be $217.7 million.

Industry, Science, Energy and Resources

Clean Energy Finance Corporation

The Clean Energy Finance Corporation (CEFC) has developed a portfolio of loans and

investments across the spectrum of clean energy technologies, as required by the Clean

Energy Finance Corporation Act 2012. This portfolio has an acceptable but not excessive

level of risk relative to the sector, as required under the Clean Energy Finance

Corporation Investment Mandate Direction 2020.

The CEFC’s loan portfolio consists of predominantly senior-ranking, secured loans, and

secured project finance facilities, typically secured against energy-generating assets such

as wind or solar farms or biogas facilities or energy efficiency assets. The CEFC has

predominantly made loans as a co-financier either jointly or in consortiums with private

sector financial institutions. Interest rates vary with a current average expected return

of approximately 4.4 per cent. Loans have various maturity dates, typically in the range

of 5 to 15 years. As at 30 June 2021, loans contracted and outstanding are expected to

total $2.5 billion.

Northern Australia Infrastructure Facility Loans

The Northern Australian Infrastructure Facility (NAIF) is a lending facility established

by the Commonwealth Government under the Northern Australia Infrastructure Facility

Act 2016, and will operate until 30 June 2026 (pending passage of legislation by

Parliament extending operations beyond 30 June 2021). The primary purpose of the

NAIF is to provide loans to infrastructure projects and businesses across northern

Australia to achieve economic and population growth, and enhance private sector

investment in the region.



To be eligible for a loan from the NAIF, including up to 100 per cent of the project’s debt,

project proponents must meet the mandatory criteria outlined in the NAIF Investment

Mandate of 2 May 2018. The Commonwealth Government announced changes to the

NAIF on 30 September 2020 to:

• expand the eligibility for NAIF financing to include non-construction activities

associated with the development of economic infrastructure

• enhance the potential to deliver significant public benefit to northern Australia by

removing the prohibition against the Commonwealth assuming the majority risk in

any project. The new requirement is that the financial risk be acceptable but not

excessive.

Further changes were announced in the 2020-21 MYEFO context to simplify the NAIF’s

use of debt tools other than loans, such as guarantees and the purchase of bonds, and to

permit the NAIF to make equity investments.

The Commonwealth Government has introduced legislation to give effect to these

changes.

Infrastructure, Transport, Regional Development and Communications

NBN Co Loan

The Australian Government has provided a loan of $19.5 billion to NBN Co, on

commercial terms, which was fully drawn in July 2020. The loan was established

in December 2016 and must be repaid in full by 30 June 2024. $3.0 billion was repaid

in December 2020 and a further $2.6 billion was repaid in May 2021, with an outstanding

balance of $13.9 billion expected as at 30 June 2021. The loan has a fixed interest rate

of 3.96 per cent per annum, with interest payable monthly over the life of the facility.

WestConnex Stage 2 Concessional Loan

The WestConnex concessional loan is a $2 billion loan facility provided to deliver

WestConnex Stage 2. The concessional loan enabled Stage 2 to be brought forward,

allowing Stages 1 and 2 to proceed in parallel. This resulted in significant time savings,

compared to the original approach where these stages progressed in sequence.

WestConnex Stage 2 includes the King Georges Road Interchange Upgrade (completed

in 2016) and construction of new twin tunnels from Kingsgrove to a new St Peters

interchange, providing motorway connections to Alexandria and Mascot, the future

Sydney Gateway and the M4-M5 Link.

The concessional loan agreement requires that the loan be repaid between

September 2029 and July 2034.



Prime Minister and Cabinet

Indigenous Home Ownership, Business Development and Assistance

Indigenous Business Australia (IBA) delivers flexible loans with concessional interest

rates to improve Indigenous home ownership across Australia, including in remote

Indigenous communities. IBA also provides concessional interest rate business loans

and business support to increase Indigenous ownership of small to medium sized

enterprises, and support their sustainability and growth. As at 30 June 2021, the fair

value of outstanding loans for Indigenous Home Ownership and Business Development

and Assistance will total $1.0 billion.

Voyages Indigenous Tourism Australia Pty Ltd

The Indigenous Land and Sea Corporation (ILSC) purchased Ayers Rock Resort (ARR)

for $291.2 million in May 2011 and immediately on-sold it to its wholly owned

subsidiary, Voyages Indigenous Tourism Australia Pty Ltd (Voyages), creating an

intercompany loan that is partly funded by borrowings. The interest rate is set at the

90-day bank bill swap reference rate plus 5 per cent, and is reset six-monthly. As at

30 June 2021, the estimated outstanding loan balance will total $289 million.

Social Services

Student Start-up Loan

The Student Start-up Loan (SSL) is a voluntary income-contingent loan for student

payment (Youth Allowance (student), Austudy and ABSTUDY Living Allowance)

recipients undertaking higher education. Introduced on 1 January 2016, the SSL is paid

a maximum of twice a year and each SSL payment is valued at $1,094 (in 2021). The SSL

is repayable under similar arrangements to Higher Education Loan Program (HELP)

debts. Students are required to start repaying their SSL once they earn over $46,620 for

2020-21 and only after they have repaid their HELP debt. When it commenced, the SSL

was initially for new student payment recipients undertaking higher education. From

1 July 2017, with the closure of the Student Start-up Scholarship, the SSL has become

available to all eligible student payment recipients undertaking higher education. As at

30 June 2021, the fair value of the Student Start-up Loan is estimated to be $672.8 million.

Student Financial Supplement Scheme

The Student Financial Supplement Scheme (SFSS) commenced in January 1993 and

closed on 31 December 2003. It was a voluntary income-contingent loan scheme for

tertiary students (primarily Austudy and ABSTUDY) to help cover their living expenses

while studying. Under the scheme, eligible students were able to trade one dollar of

income support entitlement for two dollars in loans. Debtors are required to start

repaying their SFSS loan once they earn $46,620 for 2020-21. As at 30 June 2021, the fair

value of SFSS loans outstanding is estimated to total $372.8 million.



Treasury

Loan Agreement between the Government of Australia and the Government of Indonesia

On 12 November 2020, Australia entered into a A$1.5 billion loan agreement with

Indonesia. This agreement is part of a multilateral action to support Indonesia led by the

Asian Development Bank (ADB) and includes the Asian Infrastructure Investment Bank,

the Japan International Cooperation Agency (JICA) and the German state-owned

development bank (KfW).

The funds will be used to support Indonesia’s COVID-19 response, including social

protection initiatives and health system development.

Commonwealth-State financing arrangements — Housing and Specific Purpose Capital

From 1945 to 1989, the Australian Government made concessional advances to the state

and Northern Territory Governments under Commonwealth–State financing

arrangements for housing and for specific purpose capital. The advances were

concessional fixed-rate loans to be repaid over 53 years, with the last loans maturing

in 2042. Annual payments, comprising both interest and principal repayment, are made

to the Commonwealth Government. As at 30 June 2021, the amortised value of the

advances was $1.414 billion (and principal value of $1.554 billion).

The Australian Office of Financial Management manages the receipt of interest and

principal repayments from the state and Northern Territory Governments to the

Commonwealth Government.

International Monetary Fund — New Arrangements to Borrow

Australia has made a line of credit available to the International Monetary Fund (IMF)

under its New Arrangements to Borrow (NAB) since 1998. On 26 January 2020, the IMF

Executive Board agreed to a new NAB period from 1 January 2021 to 31 December 2025.

The NAB helps ensure that the IMF has the resources available to maintain stability and

support recovery in the global economy. NAB funds are drawn upon by the IMF as

needed to supplement the IMF’s usual quota resources and will be repaid in full with

interest. It is expected that the fair value of loans outstanding to Australia was

SDR 63.476 million (approximately A$122.5 million as at 30 June 2021).



Affordable Housing Bond Aggregator

The Australian Government, through the Treasury, has made available a line of credit

for the National Housing Finance and Investment Corporation’s (NHFIC) Affordable

Housing Bond Aggregator (AHBA). The provision of funds will be in accordance with

appropriations under the National Housing Finance and Investment Corporation Act 2018.

The line of credit is ongoing and funds borrowed will be repaid with interest.

The Treasury manages the receipt of interest and principal repayments from the NHFIC.

Loan to the Government of Papua New Guinea

On 23 November 2020, the Government entered into a loan agreement for

US$400 million (approximately A$558 million) in 2020-21 to the

Government of Papua New Guinea. The loan refinances the US$300 million short-term

loan made in 2019-20 and a further A$140 million loan for budget support, including

PNG’s response to COVID-19. The previous short-term loan was made to support

budget sustainability, assist in the delivery of core government services, support longer

term economic reforms and increase the availability of foreign exchange in the country.

The Australian Government has agreed to enter negotiations with PNG to suspend

principal and interest repayments for the loan consistent with the Debt Service

Suspension Initiative of G20 nations to support low-income nations during the

COVID-19 pandemic.

Statement 10: Australian Government Budget Financial Statements | Page 305

Statement 10: Australian Government Budget Financial Statements

Consistent with the Charter of Budget Honesty Act 1998 (the Charter), the Government has produced a single set of financial statements for the Australian Government general government sector (GGS), the public non-financial corporations (PNFC) sector, the total non-financial public sector (NFPS) and the public financial corporations (PFC) sector. The financial statements comply with both the Australian Bureau of Statistics’ (ABS) accrual Government Finance Statistics (GFS) and Australian Accounting Standards (AAS), with departures disclosed. These statements are:

• an operating statement, including other economic flows, which shows net operating balance and net lending/borrowing (fiscal balance)

• a balance sheet, which also shows net worth, net financial worth, net financial liabilities and net debt

• a cash flow statement, which includes the calculation of the underlying cash balance.

In addition to these general purpose statements, notes to the financial statements are required. These notes include a summary of accounting policies, disaggregated information and other disclosures required by AAS.

The statements reflect the Government’s policy that the ABS GFS remains the basis of budget accounting policy, except where AAS is applied because it provides a better conceptual basis for presenting information of relevance to users of public sector financial reports.

The Australian, state and territory governments have an agreed framework — the Uniform Presentation Framework (UPF) — for the presentation of government financial information on a basis broadly consistent with the Australian Accounting Standard AASB 1049. The financial statements are consistent with the requirements of the UPF.


Contents

Statement 10: Australian Government Budget Financial Statements ................................................................................................ 309

Notes to the general government sector financial statements ...................................... 324

Appendix A: Financial reporting standards and budget concepts ......... 339 AASB 1049 Conceptual framework............................................................................. 339

Appendix B: Assets and Liabilities ........................................................... 347

The Australian Government’s major assets and liabilities .......................................... 347


Statement 10: Australian Government Budget Financial Statements

Table 10.1: Australian Government general government sector operating statement Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

Note $m $m $m $m $m

Revenue

Taxation revenue 3 465,771 456,972 466,100 504,313 536,676

Sales of goods and services 4 15,947 17,175 17,704 18,772 19,864

Interest income 5 2,901 3,621 3,403 3,727 4,094

Dividend income 5 8,038 7,265 6,789 7,138 7,263

Other 6 12,231 11,588 11,148 10,537 10,061

Total revenue 504,888 496,621 505,145 544,487 577,959

Expenses

Gross operating expenses

Wages and salaries(a) 7 21,779 22,440 22,082 21,920 22,494

Superannuation 7 12,387 6,973 7,074 7,187 7,419

Depreciation and amortisation 8 11,851 12,154 12,741 13,624 14,264

Supply of goods and services 9 144,601 161,315 156,814 164,735 168,722

Other operating expenses(a) 7 8,405 8,891 9,294 8,184 8,413

Total gross operating expenses 199,021 211,772 208,005 215,649 221,312

Superannuation interest expense 7 7,004 10,018 10,775 11,372 12,191

Interest expenses(b) 10 19,812 19,519 20,137 21,889 22,969

Current transfers

Current grants 11 167,111 170,580 175,249 180,694 186,080

Subsidy expenses 86,892 17,364 15,598 15,293 16,107

Personal benefits 12 161,889 140,253 143,027 149,462 158,398

Total current transfers 415,892 328,198 333,875 345,449 360,585

Capital transfers 11

Mutually agreed write-downs(b) 2,954 2,746 2,913 3,159 3,331

Other capital grants 14,755 17,080 19,673 17,147 13,307

Total capital transfers 17,709 19,826 22,586 20,306 16,637

Total expenses 659,437 589,334 595,378 614,665 633,694

Net operating balance -154,549 -92,713 -90,233 -70,178 -55,736

Other economic flows —

included in operating result

Net write-downs of assets -4,003 -6,351 -6,711 -6,860 -7,156

Assets recognised for the first time 195 200 204 209 214

Actuarial revaluations 126 124 86 76 64

Net foreign exchange gains -479 -352 0 22 134

Net swap interest received 1,148 0 0 0 0

Market valuation of debt 37,494 260 -1,051 -1,284 -1,361

Other gains/(losses) 15,502 8,030 8,514 8,778 9,420

Total other economic flows —

included in operating result 49,984 1,910 1,043 943 1,315

Operating result(c) -104,565 -90,804 -89,189 -69,236 -54,421


Page 310 | Statement 10: Australian Government Budget Financial Statements

Table 10.1: Australian Government general government sector operating statement (continued) Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

Note $m $m $m $m $m

Non-owner movements in equity

Revaluation of equity investments -10,149 -230 8 0 0

Actuarial revaluations -1,242 -375 -138 -151 -212

Other economic revaluations -2,614 -88 -47 -40 -28

Total other economic flows -

included in equity -14,005 -694 -177 -191 -239

Comprehensive result —

Total change in net worth -118,570 -91,497 -89,367 -69,426 -54,660

Net operating balance -154,549 -92,713 -90,233 -70,178 -55,736

Net acquisition of non-financial assets

Purchases of non-financial assets 18,318 22,325 23,202 23,402 22,890

less Sales of non-financial assets 228 281 172 207 212

less Depreciation 11,851 12,154 12,741 13,624 14,264

plus Change in inventories 2,381 440 649 564 747

plus Other movements in non-financial assets 0 0 0 0 0

Total net acquisition of

non-financial assets 8,620 10,330 10,939 10,135 9,161

Fiscal balance

(Net lending/borrowing)(d) -163,169 -103,043 -101,171 -80,313 -64,897

(a) Consistent with the ABS GFS classification, other employee related expenses are classified separately from wages and salaries under other operating expenses. Total employee expenses equal wages and salaries plus other operating expenses.

(b) From the 2020-21 Budget, the value of Debt Not Expected to be Repaid (DNER) on initial recognition of income contingent concessional loans was reported as an expense. The expense is now reported as a mutually agreed write-down, which is a form of capital transfer. It was previously recorded in other financing costs.

(c) Operating result under AAS. (d) The term fiscal balance is not used by the ABS.



Table 10.2: Australian Government general government sector balance sheet Estimates 2020-21 2021-22 2022-23 2023-24 2024-25 Note $m $m $m $m $m

Assets

Financial assets

Cash and deposits(a) 46,693 61,795 43,691 42,473 40,883

Advances paid 13 82,235 85,655 88,321 76,384 77,706

Investments, loans and placements(a) 14 181,717 188,218 195,897 203,976 209,981

Other receivables 13 67,065 73,678 75,835 79,163 81,858

Equity investments

Investments in other public sector

entities 55,821 58,649 62,992 67,462 70,991

Equity accounted investments 3,528 3,892 4,243 4,553 4,952

Investments — shares 72,829 79,311 85,130 91,497 96,328

Total financial assets 509,888 551,198 556,108 565,509 582,700

Non-financial assets 15

Land 11,817 11,871 11,941 11,921 11,971

Buildings 43,970 45,056 47,315 49,264 50,374

Plant, equipment and infrastructure 93,468 100,662 107,314 114,252 121,067

Inventories 11,710 11,744 11,980 12,105 12,403

Intangibles 9,821 10,796 11,343 11,581 11,640

Investment properties 210 217 217 217 217

Biological assets 28 16 16 16 16

Heritage and cultural assets 11,979 11,986 11,995 11,986 11,977

Assets held for sale 250 248 248 248 248

Other non-financial assets 37 37 37 37 37

Total non-financial assets 183,290 192,634 202,407 211,630 219,952

Total assets 693,178 743,832 758,515 777,139 802,652

Liabilities

Interest bearing liabilities

Deposits held 484 484 484 484 484

Government securities 891,811 1,028,091 1,126,277 1,207,245 1,274,052

Loans 16 16,345 16,125 16,091 16,073 16,101

Lease liabilities 19,527 19,991 20,071 19,480 18,494

Total interest bearing liabilities 928,166 1,064,691 1,162,923 1,243,281 1,309,131



Table 10.2: Australian Government general government sector balance sheet (continued) Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

Note $m $m $m $m $m

Provisions and payables

Superannuation liability 17 243,455 247,892 252,795 257,899 269,936

Other employee liabilities 17 33,124 33,839 34,588 35,417 36,255

Suppliers payables 18 8,507 9,226 9,779 9,882 10,238

Personal benefits payables 18 3,137 2,998 2,964 3,683 3,842

Subsidies payables 18 1,090 1,482 1,524 1,573 1,595

Grants payables 18 4,332 4,026 3,767 3,991 4,040

Other payables 18 3,302 3,136 3,055 2,925 2,804

Provisions 18 54,560 54,534 54,478 55,274 56,256

Total provisions and payables 351,507 357,133 362,951 370,644 384,966

Total liabilities 1,279,673 1,421,824 1,525,874 1,613,925 1,694,097

Net worth(b) -586,495 -677,992 -767,359 -836,786 -891,445

Net financial worth(c) -769,785 -870,626 -969,767 -1,048,416 -1,111,397

Net financial liabilities(d) 825,606 929,275 1,032,758 1,115,878 1,182,388

Net debt(e) 617,521 729,023 835,015 920,448 980,561

(a) Australian Office of Financial Management has moved from primarily using term deposits to a cash management account for investing cash for short-term liquidity management. This has resulted in a decrease in investments, loans and placements and an increase in cash and deposits.

(b) Net worth equals total assets minus total liabilities. (c) Net financial worth equals total financial assets minus total liabilities. (d) Net financial liabilities equals total liabilities less financial assets other than investments in other public

sector entities. (e) Net debt is the sum of interest bearing liabilities less the sum of selected financial assets (cash and

deposits, advances paid and investments, loans and placements).



Table 10.3: Australian Government general government sector cash flow statement(a) Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Cash receipts from operating activities

Taxes received 459,470 445,599 455,328 493,106 525,353

Receipts from sales of goods and services 16,381 17,364 17,848 18,908 19,996

Interest receipts 2,995 3,063 3,080 3,363 3,721

Dividends and income tax equivalents 8,493 5,829 7,451 7,077 7,460

Other receipts 12,259 9,916 10,120 10,195 15,226

Total operating receipts 499,596 481,771 493,827 532,648 571,757

Cash payments for operating activities

Payments to employees(b) -32,100 -35,292 -35,065 -35,449 -35,112

Payments for goods and services -140,017 -159,044 -154,782 -163,850 -168,195

Grants and subsidies paid -281,234 -206,165 -210,712 -212,611 -215,419

Interest paid -17,121 -17,789 -18,002 -20,060 -20,834

Personal benefit payments -163,952 -140,966 -143,776 -149,494 -158,228

Other payments(b) -7,873 -8,219 -8,590 -7,396 -7,626

Total operating payments -642,297 -567,475 -570,928 -588,860 -605,414

Net cash flows from operating activities -142,701 -85,704 -77,101 -56,212 -33,657

Cash flows from investments in

non-financial assets

Sales of non-financial assets 235 282 173 207 213

Purchases of non-financial assets -16,056 -18,786 -19,901 -21,042 -21,067

Net cash flows from investments in

non-financial assets -15,821 -18,504 -19,728 -20,836 -20,854


financial assets for policy purposes -7,286 -10,428 -10,140 4,096 -8,182


financial assets for liquidity purposes 60,898 -3,513 -4,185 -4,448 -320

Cash receipts from financing activities

Borrowing 345,507 710,589 942,139 790,717 605,094

Other financing 1,142 6 6 6 11

Total cash receipts from financing

activities 346,649 710,595 942,145 790,723 605,104

Cash payments for financing activities

Borrowing -197,595 -570,386 -841,299 -708,341 -536,277

Other financing -6,904 -6,958 -7,796 -6,200 -7,405

Total cash payments for financing

activities -204,499 -577,344 -849,095 -714,541 -543,682

Net cash flows from financing activities 142,150 133,252 93,050 76,182 61,422

Net increase/(decrease) in cash held 37,240 15,102 -18,104 -1,217 -1,590



Table 10.3: Australian Government general government sector cash flow statement (continued)(a) Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

GFS cash surplus(+)/deficit(-)(c) -158,522 -104,209 -96,829 -77,048 -54,511

plus Net cash flows from financing

activities for leases(d) -2,430 -2,411 -2,438 -2,466 -2,455

Equals underlying cash balance(e) -160,952 -106,619 -99,266 -79,514 -56,966

plus Net cash flows from investments in

financial assets for policy purposes -7,286 -10,428 -10,140 4,096 -8,182

Equals headline cash balance -168,238 -117,047 -109,407 -75,417 -65,148

(a) A positive number denotes a cash inflow; a negative number denotes a cash outflow. (b) Consistent with the ABS GFS classification, other employee related payments are classified separately

from wages and salaries under other payments. (c) GFS cash surplus/deficit equals net cash flows from operating activities and investments in

non-financial assets. (d) Principal payments on lease liabilities, which are financing cash payments, are deducted in the calculation

of the underlying cash balance to maintain consistency of measure following the implementation of AASB 16.

(e) The term underlying cash balance is not used by the ABS.



Table 10.4: Australian Government public non-financial corporations sector operating statement Estimates

2020-21 2021-22

$m $m

Revenue

Grants and subsidies 874 269

Sales of goods and services 17,075 18,175

Interest income 21 8

Other 53 79

Total revenue 18,024 18,532

Expenses


Wages and salaries(a) 4,603 4,650

Superannuation 506 510

Depreciation and amortisation 4,761 4,873

Supply of goods and services 9,304 8,372

Other operating expenses(a) 825 545

Total gross operating expenses 19,999 18,949

Interest expenses 1,788 1,740

Other property expenses 241 281

Current transfers

Tax expenses 134 0

Total current transfers 134 0

Total expenses 22,162 20,969

Net operating balance -4,139 -2,438

Other economic flows -398 -1,305

Comprehensive result — Total change in net worth

excluding contribution from owners -4,536 -3,743


Purchases of non-financial assets 7,101 8,423

less Sales of non-financial assets 1 0

less Depreciation 4,761 4,873

plus Change in inventories 27 -2

plus Other movements in non-financial assets 0 0

Total net acquisition of non-financial assets 2,366 3,548

Fiscal balance (Net lending/borrowing)(b) -6,505 -5,986


(b) The term fiscal balance is not used by the ABS.



Table 10.5: Australian Government public non-financial corporations sector balance sheet Estimates

2020-21 2021-22

$m $m

Assets

Financial assets

Cash and deposits 1,690 1,743

Investments, loans and placements 596 220

Other receivables 3,166 3,198

Equity investments 195 202

Total financial assets 5,646 5,364

Non-financial assets

Land and other fixed assets 57,614 60,053

Other non-financial assets(a) 4,091 3,900

Total non-financial assets 61,705 63,952

Total assets 67,351 69,316

Liabilities


Deposits held 13 13

Advances received and loans 28,684 31,907

Lease liabilities 12,625 12,409

Total interest bearing liabilities 41,322 44,328


Superannuation liability 19 19

Other employee liabilities 2,203 2,056

Other payables 5,460 5,634

Other provisions(a) 679 598

Total provisions and payables 8,360 8,307

Total liabilities 49,682 52,635

Shares and other contributed capital 17,669 16,681

Net worth(b) 17,669 16,681

Net financial worth(c) -44,035 -47,272

Net debt(d) 39,036 42,365

(a) Excludes the impact of commercial taxation adjustments. (b) Under AASB 1049, net worth equals total assets minus total liabilities. Under the ABS GFS, net worth

equals total assets minus total liabilities minus shares and other contributed capital. The AASB 1049 method is used in this table.

(c) Under AASB 1049, net financial worth equals total financial assets minus total liabilities. Under the ABS GFS, net financial worth equals total financial assets minus total liabilities minus shares and other contributed capital. The AASB 1049 method is used in this table.

(d) Net debt is the sum of interest bearing liabilities less the sum of selected financial assets (cash and deposits and investments, loans and placements).



Table 10.6: Australian Government public non-financial corporations sector cash flow statement(a) Estimates

2020-21 2021-22

$m $m


Receipts from sales of goods and services 18,785 19,527

Grants and subsidies received 1,043 348

GST input credit receipts 1,237 1,147

Other receipts 31 134

Total operating receipts 21,096 21,156


Payments to employees(b) -5,011 -4,999

Payment for goods and services -12,091 -10,162

Interest paid -1,783 -1,839

GST payments to taxation authority -751 -849

Distributions paid -246 -281

Other payments(b) -882 -686

Total operating payments -20,763 -18,816

Net cash flows from operating activities 333 2,340

Cash flows from investments in non-financial assets

Sales of non-financial assets 3 2

Purchases of non-financial assets -6,306 -7,898

Net cash flows from investments in non-financial assets -6,303 -7,896

Net cash flows from investments in financial assets

for policy purposes -4 12


for liquidity purposes -442 71

Net cash flows from financing activities

Borrowing (net) 3,622 3,211

Other financing (net) 2,223 2,315

Net cash flows from financing activities 5,845 5,526

Net increase/(decrease) in cash held -571 53

Cash at the beginning of the year 2,261 1,690

Cash at the end of the year 1,690 1,743

GFS cash surplus(+)/deficit(-)(c) -5,970 -5,556

plus Net cash flows from financing activities for leases(d) -389 -472

Adjusted GFS cash surplus(+)/deficit(-)(d) -6,360 -6,028


from wages and salaries under other payments. (c) GFS cash surplus/deficit equals net cash flows from operating activities and investments in non-financial

assets. (d) To retain a consistent measure of the GFS cash surplus/deficit following the implementation of

AASB 16, its calculation is adjusted to include the principal payments on lease liabilities.



Table 10.7: Australian Government total non-financial public sector operating statement Estimates

2020-21 2021-22

$m $m

Revenue

Taxation revenue 465,236 456,261

Sales of goods and services 32,121 34,503

Interest income 2,222 3,068

Dividend income 7,797 6,984

Other 12,170 11,615


Expenses


Wages and salaries(a) 26,382 27,089

Superannuation 12,893 7,483

Depreciation and amortisation 16,612 17,027

Supply of goods and services 152,874 168,823

Other operating expenses(a) 9,230 9,436

Total gross operating expenses 217,990 229,857

Superannuation interest expense 7,004 10,018

Interest expenses(b) 20,899 20,698

Current transfers

Current grants 167,111 170,580

Subsidy expenses 85,338 16,540

Personal benefits 161,889 140,253

Total current transfers 414,337 327,373

Capital transfers(b) 17,497 19,652


Net operating balance -158,182 -95,168

Other economic flows 38,293 204

Comprehensive result — Total change in net worth -119,889 -94,964


Purchases of non-financial assets 25,418 30,748


less Depreciation 16,612 17,027

plus Change in inventories 2,409 438


Total net acquisition of non-financial assets 10,986 13,878

Fiscal balance (Net lending/borrowing)(c) -169,168 -109,045



(c) The term fiscal balance is not used by the ABS.



Table 10.8: Australian Government total non-financial public sector balance sheet

Estimates

2020-21 2021-22

$m $m

Assets

Financial assets

Cash and deposits(a) 48,383 63,808

Advances paid 68,047 71,435

Investments, loans and placements(a) 182,293 188,431

Other receivables 69,606 75,873

Equity investments 97,852 104,804



Land and other fixed assets 230,549 241,362

Other non-financial assets 14,487 15,266


Total assets 711,218 760,979

Liabilities


Deposits held 496 496

Government securities 891,811 1,028,091

Advances received and loans 30,820 33,805

Lease liabilities 32,145 32,392

Total interest bearing liabilities 955,273 1,094,784


Superannuation liability 243,474 247,911

Other employee liabilities 35,327 35,895


Other provisions 55,233 55,112


Total liabilities 1,314,057 1,458,781

Net worth(b) -602,839 -697,803

Net financial worth(c) -847,876 -954,430

Net debt(d) 656,550 771,111


(b) Under AASB 1049, net worth equals total assets minus total liabilities. Under the ABS GFS, net worth equals total assets minus total liabilities minus shares and other contributed capital. The AASB 1049 method is used in this table.

(c) Under AASB 1049, net financial worth equals total financial assets minus total liabilities. Under the ABS GFS, net financial worth equals total financial assets minus total liabilities minus shares and other contributed capital. The AASB 1049 method is used in this table.

(d) Net debt is the sum of interest bearing liabilities less the sum of selected financial assets (cash and deposits, advances paid and investments, loans and placements).



Table 10.9: Australian Government total non-financial public sector cash flow statement(a) Estimates

2020-21 2021-22

$m $m


Taxes received 459,369 445,657

Receipts from sales of goods and services 32,245 34,336

Interest receipts 2,327 2,520

Dividends and income tax equivalents 8,252 5,548

Other receipts 12,082 9,969



Payments to employees(b) -37,111 -40,291

Payments for goods and services -149,162 -166,338

Grants and subsidies paid -279,608 -205,817

Interest paid -18,212 -19,077

Personal benefit payments -163,952 -140,966

Other payments(b) -8,576 -8,902


Net cash flows from operating activities -142,347 -83,360



Purchases of non-financial assets -22,362 -26,684

Net cash flows from investments in non-financial assets -22,124 -26,400


for policy purposes -10,224 -7,374


for liquidity purposes 60,460 -3,442


Borrowing (net) 157,076 143,403

Other financing (net) -6,167 -7,402

Net cash flows from financing activities 150,908 136,001

Net increase/(decrease) in cash held 36,672 15,425

Cash at the beginning of the year 11,711 48,383

Cash at the end of the year 48,383 63,808

GFS cash surplus(+)/deficit(-)(c) -164,471 -109,760

plus Net cash flows from financing activities for leases(d) -2,817 -2,883

Adjusted GFS cash surplus(+)/deficit(-)(d) -167,289 -112,643


from wages and salaries under other payments. (c) GFS cash surplus/deficit equals net cash flows from operating activities and investments in non-financial

assets. (d) To retain a consistent measure of the GFS cash surplus/deficit following the implementation of AASB 16,

its calculation is adjusted to include the principal payments on lease liabilities.



Table 10.10: Australian Government public financial corporations sector operating statement Estimates

2020-21 2021-22

$m $m

Revenue

Grants and subsidies 156 138

Sales of goods and services 768 636

Interest income 4,735 8,743

Other 94 94


Expenses


Wages and salaries(a) 209 222

Superannuation 77 39

Depreciation and amortisation 69 67

Supply of goods and services 513 575

Other operating expenses(a) 56 60

Total gross operating expenses 923 964

Interest expenses 378 157

Other property expenses 2,116 3,535

Current transfers

Tax expenses 6 7

Total current transfers 6 7


Net operating balance 2,329 4,948

Other economic flows -11,968 -4,874

Comprehensive result — Total change in net worth

excluding contribution from owners -9,638 74


Purchases of non-financial assets 2 3


less Depreciation 69 67

plus Change in inventories -42 0


Total net acquisition of non-financial assets -109 -65

Fiscal balance (Net lending/borrowing)(b) 2,438 5,013


(b) The term fiscal balance is not used by the ABS.



Table 10.11: Australian Government public financial corporations sector balance sheet(a)

Estimates

2020-21 2021-22

$m $m

Assets

Financial assets

Cash and deposits 664 649

Investments, loans and placements 405,291 409,269

Other receivables 164 207

Equity investments 726 739



Land and other fixed assets 913 908

Other non-financial assets(b) 92 93


Total assets 407,850 411,866

Liabilities


Deposits held 371,800 371,817

Borrowing 8,666 9,055

Total interest bearing liabilities 380,466 380,871


Superannuation liability 944 944

Other employee liabilities 216 217


Other provisions(b) 1,786 1,840


Total liabilities 386,591 390,528

Shares and other contributed capital 21,260 21,337

Net worth(c) 21,260 21,337

Net financial worth(d) 20,254 20,336

Net debt(e) -25,489 -29,047

(a) Assumes no valuation or currency movement. (b) Excludes the impact of commercial taxation adjustments. (c) Under AASB 1049, net worth equals total assets minus total liabilities. Under the ABS GFS, net worth

equals total assets minus total liabilities minus shares and other contributed capital. The AASB 1049 method is used in this table.

(d) Under AASB 1049, net financial worth equals total financial assets minus total liabilities. Under the ABS GFS, net financial worth equals total financial assets minus total liabilities minus shares and other contributed capital. The AASB 1049 method is used in this table.

(e) Net debt is the sum of interest bearing liabilities less the sum of selected financial assets (cash and deposits and investments, loans and placements).



Table 10.12: Australian Government public financial corporations sector cash flow statement(a) Estimates

2020-21 2021-22

$m $m


Receipts from sales of goods and services 783 672

Grants and subsidies received 156 138

GST input credit receipts 13 1

Interest receipts 4,724 8,719

Other receipts 14 9



Payments to employees(b) -293 -264

Payment for goods and services -714 -755

Interest paid -266 -131

GST payments to taxation authority -16 -18

Distributions paid -2,583 -16

Other payments(b) -64 -59


Net cash flows from operating activities 1,755 8,296



Purchases of non-financial assets -105 -3

Net cash flows from investments in non-financial assets -105 -3


for policy purposes -615 -445


for liquidity purposes(c) -130,231 -8,303


Borrowing and deposits received (net)(c) 122,381 494

Other financing (net) 6,776 -54

Net cash flows from financing activities 129,158 441

Net increase/(decrease) in cash held -39 -14

Cash at the beginning of the year 702 664

Cash at the end of the year 664 649

GFS cash surplus(+)/deficit(-)(d) 1,650 8,293

plus Net cash flows from financing activities for leases(e) -1 -1

Adjusted GFS cash surplus(+)/deficit(-)(e) 1,649 8,292


from wages and salaries under other payments. (c) Assumes no cash flows associated with valuation or currency movements. (d) GFS cash surplus/deficit equals net cash flows from operating activities and investments in non-financial

assets. (e) To retain a consistent measure of the GFS cash surplus/deficit following the implementation of AASB 16,

its calculation is adjusted to include the principal payments on lease liabilities.



Notes to the general government sector financial statements

Note 1: External reporting standards and accounting policies

The Charter of Budget Honesty Act 1998 (the Charter) requires that the Budget be based

on external reporting standards and that departures from applicable external reporting

standards be identified.

The external standards used for budget reporting purposes are:

• the Australian Bureau of Statistics’ (ABS) accrual Government Finance Statistics

(GFS) publication, Australian System of Government Finance Statistics: Concepts, Sources

and Methods, 2015 (cat. no. 5514.0), which is based on the International Monetary

Fund (IMF) accrual GFS framework

• the Australian Accounting Standards (AAS), issued by the Australian Accounting

Standards Board (AASB), which includes International Financial Reporting

Standards as adopted in Australia for use by the not-for-profit sector and specific

standards such as AASB 1049 Whole of Government and General Government Sector

Financial Reporting (AASB 1049).

The financial statements have been prepared on an accrual basis that complies with both

the ABS GFS and AAS, except for departures disclosed at Note 2. A more detailed

description of the AAS and the ABS GFS frameworks, in addition to definitions of key

terms used in these frameworks, can be found in Appendix A. Detailed accounting

policies, as well as a set of notes and other disclosures as required by AAS, are disclosed

in the Australian Government Consolidated Financial Statements.

Fiscal reporting focuses on the general government sector (GGS). The GGS provides

public services that are mainly non-market in nature and for the collective consumption

of the community, or involve the transfer or redistribution of income. These services are

largely financed through taxes and other compulsory levies. This sector comprises all

government departments, offices and some other bodies. In preparing financial

statements for the GGS, all material transactions and balances between entities within

the GGS have been eliminated.

The Government’s key fiscal aggregates are based on the ABS GFS concepts and

definitions, including the ABS GFS cash surplus/deficit and net financial worth.

AASB 1049 requires the disclosure of other ABS GFS fiscal aggregates, including the net

operating balance, net lending/borrowing (fiscal balance) and net worth. In addition to

these ABS GFS aggregates, the Uniform Presentation Framework (UPF) requires

disclosure of net debt, net financial worth and net financial liabilities.



AASB 1049 and the UPF also provide a basis for reporting the public non-financial

corporations (PNFC) and public financial corporations (PFC) sectors and the total

non-financial public sector (NFPS).

AASB 1049 requires disaggregated information, by ABS GFS function, for expenses and

total assets to be disclosed where they are reliably attributable. The ABS GFS does not

require total assets to be attributed to functions. In accordance with the ABS GFS,

disaggregated information for expenses and net acquisition of non-financial assets by

function is disclosed in Statement 6: Expenses and Net Capital Investment. In accordance

with the UPF, purchases of non-financial assets by function are also disclosed in

Statement 6.

AASB 1055 Budgetary Reporting requires major variances between original budget

estimates and outcomes to be explained in the financial statements. Explanations of

variances in fiscal balance, revenue, expenses, net capital investment, cash flows, net

debt, net financial worth and net worth since the 2020-21 Budget are disclosed in

Statement 3: Fiscal Strategy and Outlook, with decisions taken since the

Mid-Year Economic and Fiscal Outlook 2020-21 (MYEFO) disclosed in Budget Paper No. 2

Budget Measures 2021-22. All policy decisions taken between the 2020-21 Budget and the

2020-21 MYEFO are disclosed in Appendix A of the MYEFO.

Details of the Australian Government’s GGS contingent liabilities are disclosed in

Statement 9: Statement of Risks.

Note 2: Departures from external reporting standards

The Charter requires that departures from applicable external reporting standards be

identified. The major differences between AAS and the ABS GFS treatments of

transactions are outlined in Table 10.13.

AASB 1049 requires AAS measurement of items to be disclosed on the face of the

financial statements with reconciliation to the ABS GFS measurement of key fiscal

aggregates, where different, in notes to the financial statements. Only one measure of

each aggregate has been included on the face statements to avoid confusion.

Further information on the differences between the two systems is provided in the ABS

publication Australian System of Government Finance Statistics: Concepts, Sources and

Methods, 2015 (cat. no. 5514.0).



Table 10.13: Major differences between AAS and ABS GFS

Issue AAS treatment ABS GFS treatment Treatment adopted

Circulating coins — seigniorage

The profit between the cost and sale of circulating coins (seigniorage) is treated as revenue.

Circulating coins is treated as a liability, and the cost of producing the coins is treated as an expense.

AAS

Valuation of loans Changes in the valuation of loans are treated as a revenue or an expense.

In some circumstances recognition as a revenue or an expense is delayed until the loan ends or is transferred.

Changes in the valuation of loans (excluding mutually agreed write-downs) are treated as an other economic flow.

ABS GFS

Timing recognition of Boosting Cash Flow for Employers

Expense recognition based on underlying economic activity that gives rise to the Cash Flow Boost payment.

Recognised when the businesses receive payments after submitting their activity statements and having met all requirements.

AAS

Leases AASB 16 introduced a single lease accounting framework for lessees, which replaced the distinction between operating and finance leases. Right of use assets and lease liabilities are recognised on the balance sheets for leases that were previously accounted for as operating expense.

The distinction between operating leases and finance leases will be continued for lessees.

AAS

Concessional loans Concessional elements are treated as an expense on initial recognition and unwound over the loan term.

Concessional elements are treated as an other economic flow.

AAS

Investment in other public sector entities

Valued at fair value in the balance sheet as long as it can be reliably measured, otherwise net assets is permissible.

Unlisted entities valued based on their net assets in the balance sheet.

AAS

Provision for restoration, decommissioning and make-good

Capitalised when the asset is acquired.

Capitalised when make-good activity takes place.

AAS

Renewable Energy Certificates (RECs)

The issuance and registration of RECs is considered to be an administrative function and does not result in the recognition of assets or liabilities and, consequently, no revenue or expenses are recognised.

The issuance and registration of RECs is considered to be government financial transactions resulting in the recognition of assets, liabilities, revenue and expenses.

AAS

Dividends paid by public corporations

Treated as an equity distribution. Equity distributions are treated as a distribution of profits, as opposed to an expense.

Dividends are treated as an expense.

ABS GFS



Table 10.13: Major differences between AAS and ABS GFS (continued)

Issue AAS treatment ABS GFS treatment Treatment adopted

Dividends paid by the Reserve Bank of Australia

Dividends are recognised in the year profit was earned.

Dividends are recognised when the Treasurer makes a determination.

AAS

National Disability Insurance Scheme (NDIS) revenue

Funding contributions by the state and territory governments to NDIS are treated as sales of goods and services revenue.

In-kind disability services provided by the state and territory governments are treated as other revenue.

Funding contributions by the state and territory governments to NDIS are treated as grants revenue.

In-kind disability services provided by the state and territory governments are treated as sales of goods and services revenue.

AAS

Commercial tax effect accounting assets and liabilities

Corporations in the PNFC and PFC sectors record tax expenses on a commercial basis.

Deferred tax assets and liabilities are reversed so that corporations record tax expenses on a consistent basis to the Australian Taxation Office.

ABS GFS

Fiscal aggregates differences

Net worth of PNFC and PFC sectors

Calculated as assets less liabilities.

Calculated as assets less liabilities less shares and other contributed capital.

AAS

Net financial worth of PNFC and PFC sectors

Calculated as financial assets less total liabilities.

Calculated as financial assets less total liabilities less shares and contributed capital.

AAS

Classification differences

Prepayments Treated as a non-financial asset. Treated as a financial asset. ABS GFS

Spectrum sales Recognise non-financial asset sale for fiscal balance when licences take effect, which may be after the auction of licences, as this is regarded as the point at which control is transferred. Recognise cash at the time of receipt.

Recognise non-financial asset sale for fiscal balance at time of auction as this is regarded as the point at which control is transferred. Recognise cash at the time of receipt.

AAS



Note 3: Taxation revenue by type

Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m


Gross income tax withholding 217,500 218,700 226,700 238,600 239,400

Gross other individuals 49,500 48,500 53,500 57,300 62,500

less: Refunds 36,000 42,300 38,100 33,100 33,900

Total individuals and other withholding taxation 231,000 224,900 242,100 262,800 268,000

Fringe benefits tax 4,040 4,090 4,290 4,460 4,630

Company tax 94,300 84,200 72,300 82,300 102,400

Superannuation fund taxes 11,680 15,280 14,530 15,280 16,230

Petroleum resource rent tax 840 1,050 990 1,030 1,030

Income taxation revenue 341,860 329,520 334,210 365,870 392,290

Goods and services tax 71,080 74,130 77,180 80,950 84,980

Wine equalisation tax 1,070 1,050 1,080 1,110 1,160

Luxury car tax 800 680 610 610 640

Excise and Custom duty

Petrol 5,850 6,100 6,300 6,650 7,050

Diesel 12,480 13,140 13,740 14,390 15,090

Other fuel products 1,560 1,830 1,860 1,910 2,000

Tobacco 15,080 14,750 14,610 14,970 15,340

Beer 2,550 2,600 2,660 2,760 2,810

Spirits 3,070 2,720 2,800 2,900 3,030

Other alcoholic beverages(a) 1,270 1,070 1,100 1,140 1,200

Other customs duty

Textiles, clothing and footwear 170 160 110 90 100

Passenger motor vehicles 340 310 70 70 80

Other imports 1,180 1,230 780 780 850

less: Refunds and drawbacks 790 650 650 650 650

Total excise and customs duty 42,760 43,260 43,380 45,010 46,900

Major bank levy 1,640 1,670 1,720 1,770 1,870

Agricultural levies 509 505 522 536 540

Other taxes 6,052 6,157 7,398 8,457 8,296

Mirror taxes 583 604 670 702 721

less: Transfers to States in relation to

mirror tax revenue 583 604 670 702 721

Mirror tax revenue 0 0 0 0 0

Indirect taxation revenue 123,911 127,452 131,890 138,443 144,386

Taxation revenue 465,771 456,972 466,100 504,313 536,676



Note 3: Taxation revenue by type (continued) Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Memorandum:

Total excise 23,930 24,840 25,790 27,000 28,320

Total customs duty 18,830 18,420 17,590 18,010 18,580

Capital gains tax(b) 16,600 17,400 18,600 19,300 20,500



Note 3(a): Taxation revenue by source Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Taxes on income, profits and capital gains

Income and capital gains levied on individuals 235,040 228,990 246,390 267,260 272,630

Income and capital gains levied on enterprises 106,820 100,530 87,820 98,610 119,660

Total taxes on income, profits and

capital gains 341,860 329,520 334,210 365,870 392,290

Taxes on employers’ payroll and labour force 1,350 812 845 902 974

Taxes on the provision of goods and services

Sales/goods and services tax 72,950 75,860 78,870 82,670 86,780

Excises and levies 24,439 25,345 26,312 27,536 28,860

Taxes on international trade 18,830 18,420 17,590 18,010 18,580

Total taxes on the provision of

goods and services 116,219 119,625 122,772 128,216 134,220

Taxes on the use of goods and performance of

activities 6,342 7,015 8,273 9,325 9,193

Total taxation revenue 465,771 456,972 466,100 504,313 536,676

Note 4: Sales of goods and services revenue Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Sales of goods 1,352 1,435 1,423 1,462 1,522

Rendering of services 12,668 13,557 14,052 15,283 16,310

Lease rental 92 89 91 90 78

Fees from regulatory services 1,836 2,095 2,137 1,936 1,953

Total sales of goods and services revenue 15,947 17,175 17,704 18,772 19,864



Note 5: Interest and dividend revenue Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Interest from other governments

State and territory debt 15 13 12 11 9

Housing agreements 81 77 72 67 62

Total interest from other governments 96 89 84 77 72

Interest from other sources

Advances 1,019 662 457 450 458

Deposits 196 101 97 101 127

Indexation of HELP receivable and other

student loans 280 1,137 909 1,053 1,190

Other 1,310 1,632 1,856 2,047 2,248

Total interest from other sources 2,805 3,531 3,320 3,650 4,023

Total interest 2,901 3,621 3,403 3,727 4,094

Dividends

Dividends from other public sector entities 2,368 3,812 3,106 3,216 3,084

Other dividends 5,670 3,453 3,683 3,921 4,179

Total dividends 8,038 7,265 6,789 7,138 7,263

Total interest and dividend revenue 10,939 10,885 10,192 10,865 11,357

Note 6: Other sources of non-taxation revenue Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Industry contributions 170 170 177 179 191

Royalties 573 538 523 504 416

Seigniorage 69 79 70 67 64

Other 11,419 10,800 10,378 9,787 9,391

Total other sources of non-taxation revenue 12,231 11,588 11,148 10,537 10,061



Note 7: Employee and superannuation expense Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Wages and salaries expenses 21,779 22,440 22,082 21,920 22,494

Other operating expenses

Leave and other entitlements 2,988 2,996 2,978 2,994 3,073

Separations and redundancies 69 80 58 57 75

Workers compensation premiums and claims 2,906 3,262 3,640 2,463 2,494

Other 2,442 2,553 2,617 2,670 2,771

Total other operating expenses 8,405 8,891 9,294 8,184 8,413

Superannuation expenses

Superannuation 12,387 6,973 7,074 7,187 7,419

Superannuation interest cost 7,004 10,018 10,775 11,372 12,191

Total superannuation expenses 19,390 16,991 17,848 18,558 19,609

Total employee and superannuation expense 49,574 48,322 49,225 48,662 50,516

Note 8: Depreciation and amortisation expense Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Depreciation

Specialist military equipment 4,749 4,844 5,395 6,146 6,809

Buildings 3,808 3,780 3,799 3,917 3,947

Other infrastructure, plant and equipment 2,066 2,202 2,224 2,211 2,149

Heritage and cultural assets 76 76 76 76 76

Other 7 7 6 6 6

Total depreciation(a) 10,707 10,909 11,501 12,356 12,987

Total amortisation 1,144 1,245 1,240 1,268 1,277

Total depreciation and amortisation expense 11,851 12,154 12,741 13,624 14,264

Memorandum:

Depreciation relating to right of use assets

Specialist military equipment 31 31 31 31 31

Buildings 2,247 2,240 2,214 2,230 2,264

Other infrastructure, plant and equipment 342 331 332 331 367

Other 7 7 6 6 6

Total depreciation of right of use assets 2,627 2,609 2,583 2,598 2,669

(a) Includes depreciation of right of use (leased) assets, resulting from implementation of AASB 16.



Note 9: Supply of goods and services expense Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Supply of goods and services 38,088 50,267 39,478 41,215 38,615

Lease expenses 158 117 76 64 45

Personal benefits — indirect 96,339 102,923 110,033 116,107 122,470

Health care payments 6,013 5,391 5,329 5,424 5,558

Other 4,002 2,617 1,898 1,925 2,034

Total supply of goods and services expense 144,601 161,315 156,814 164,735 168,722

Note 10: Interest expense Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Interest on debt

Government securities(a) 17,041 18,164 19,085 20,548 21,841

Loans 2 4 4 5 1

Other 104 122 127 131 135

Total interest on debt 17,148 18,289 19,216 20,684 21,976

Interest on lease liabilities 356 346 353 353 346

Other financing costs(b) 2,307 884 568 853 647

Total interest expense 19,812 19,519 20,137 21,889 22,969

(a) Public debt interest estimates are calculated using the contract interest rates incurred on existing Australian Government Securities (AGS), previously referred to as Commonwealth Government Securities, when issued and on technical assumptions, based on prevailing market interest rates across the yield curve, for yields on future AGS issuance.




Note 11: Current and capital grants expense Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Current grants expense

State and territory governments 128,663 133,066 138,415 144,363 150,241

Private sector 13,416 13,126 12,353 11,954 11,542

Overseas 4,538 3,935 3,886 4,105 4,377

Non-profit organisations 5,341 5,198 4,623 4,598 4,510

Multi-jurisdictional sector 12,411 11,690 11,356 11,424 11,651

Other 2,742 3,567 4,615 4,249 3,759

Total current grants expense 167,111 170,580 175,249 180,694 186,080

Capital grants expense

Mutually agreed write-downs(a) 2,954 2,746 2,913 3,159 3,331

Other capital grants

State and territory governments 12,199 14,447 17,713 16,159 12,508

Local governments 1,590 1,470 1,072 452 473

Non-profit organisations 580 657 624 482 276

Private sector 96 56 27 5 5

Other 290 451 238 49 44

Total capital grants expense 17,709 19,826 22,586 20,306 16,637

Total grants expense 184,820 190,406 197,835 201,000 202,717

(a) From the 2020-21 Budget, the value of Debt Not Expected to be Repaid (DNER) on initial recognition of income contingent concessional loans was reported as an expense. The expense is now reported as a mutually agreed write-down, which is a form of capital transfer. It was previously recorded in other financing costs.

Note 12: Personal benefits expense Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Social welfare — assistance to the aged 53,538 51,218 53,156 55,059 56,843

Assistance to veterans and dependants 4,945 4,485 4,223 4,037 3,890

Assistance to people with disabilities 28,318 27,472 28,227 29,238 29,970

Assistance to families with children 31,032 28,816 28,543 28,793 28,659

Assistance to the unemployed 31,240 18,094 15,134 14,694 14,493

Student assistance 4,643 3,291 3,082 2,997 2,983

Other welfare programs 964 969 1,007 1,029 1,082

Financial and fiscal affairs 952 417 447 480 518

Vocational and industry training 57 72 65 72 71

Other 6,200 5,419 9,145 13,063 19,889

Total personal benefits expense 161,889 140,253 143,027 149,462 158,398



Note 13: Advances paid and other receivables Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Advances paid

Loans to state and territory governments 2,199 2,023 1,863 1,711 1,553

Student loans 54,830 56,730 58,304 59,273 59,653

Other 25,551 27,253 28,508 15,744 16,841

less Impairment allowance 344 351 354 345 341

Total advances paid 82,235 85,655 88,321 76,384 77,706

Other receivables

Goods and services receivable 1,470 1,464 1,505 1,497 1,492

Recoveries of benefit payments 5,779 5,677 5,683 5,698 5,733

Taxes receivable 36,510 39,906 42,460 44,894 47,434

Prepayments 4,157 4,371 4,559 4,701 4,759

Other 21,876 24,955 24,362 25,143 25,244

less Impairment allowance 2,727 2,695 2,734 2,770 2,804

Total other receivables 67,065 73,678 75,835 79,163 81,858

Note 14: Investments, loans and placements Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Investments — deposits(a) 5,870 6,008 6,220 6,243 6,168

IMF quota 12,686 12,195 12,195 12,225 12,406

Other 163,160 170,015 177,483 185,508 191,407

Total investments, loans and placements 181,717 188,218 195,897 203,976 209,981




Note 15: Non-financial assets Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Land and buildings

Land 11,817 11,871 11,941 11,921 11,971

Buildings 43,970 45,056 47,315 49,264 50,374

Total land and buildings 55,787 56,926 59,256 61,186 62,345

Plant, equipment and infrastructure

Specialist military equipment 75,854 81,387 87,828 95,233 102,588

Other plant, equipment and infrastructure 17,615 19,275 19,486 19,019 18,479

Total plant, equipment and infrastructure 93,468 100,662 107,314 114,252 121,067

Inventories

Inventories held for sale 886 789 779 783 777

Inventories not held for sale 10,824 10,955 11,201 11,322 11,626

Total inventories 11,710 11,744 11,980 12,105 12,403

Intangibles

Computer software 5,380 6,338 6,868 7,083 7,159

Other 4,441 4,458 4,476 4,498 4,482

Total intangibles 9,821 10,796 11,343 11,581 11,640

Total investment properties 210 217 217 217 217

Total biological assets 28 16 16 16 16

Total heritage and cultural assets 11,979 11,986 11,995 11,986 11,977

Total assets held for sale 250 248 248 248 248

Total other non-financial assets 37 37 37 37 37

Total non-financial assets(a) 183,290 192,634 202,407 211,630 219,952

Memorandum:

Total relating to right of use assets

Land 154 172 167 159 153

Buildings 17,193 16,461 16,522 16,030 15,143

Specialist military equipment 260 228 197 165 134

Other plant, equipment and infrastructure 1,516 2,544 2,460 2,309 2,045

Total right of use assets 19,123 19,405 19,344 18,663 17,475

(a) Include right of use (leased) assets, resulting from implementation of AASB 16.

Note 16: Loans Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Promissory notes 9,935 9,933 9,933 9,933 9,933

Special drawing rights 5,951 5,721 5,721 5,735 5,820

Other 459 472 438 405 348

Total loans 16,345 16,125 16,091 16,073 16,101



Note 17: Employee and superannuation liabilities Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Total superannuation liability(a) 243,455 247,892 252,795 257,899 269,936

Other employee liabilities

Leave and other entitlements 9,583 9,712 9,815 9,973 10,124

Accrued salaries and wages 498 541 586 627 678

Workers compensation claims 1,903 1,780 1,694 1,617 1,554

Military compensation 20,428 21,078 21,753 22,438 23,123

Other 711 727 741 761 776

Total other employee liabilities 33,124 33,839 34,588 35,417 36,255

Total employee and

superannuation liabilities 276,579 281,731 287,383 293,315 306,191

(a) For budget reporting purposes, a discount rate of CPI plus 2.5 per cent determined by actuaries in preparing the latest Long Term Cost Reports is used to value the superannuation liability. This reflects the average annual rate estimated to apply over the term of the liability and it reduces the volatility in reported liabilities that would occur from year to year if the spot rates on long-term government bonds were used. Consistent with AAS, the superannuation liability for the 2019-20 FBO was calculated using the spot rates on long-term government bonds as at 30 June 2020 that best matched each individual scheme’s liability duration. These rates were between 1.0 and 1.7 per cent per annum.



Note 18: Provisions and payables Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Suppliers payables

Trade creditors 5,863 6,162 6,428 6,624 6,774

Lease rental payable 0 0 2 2 2

Personal benefits payables — indirect 2,019 2,455 2,741 2,653 2,857

Other creditors 625 609 608 604 605

Total suppliers payables 8,507 9,226 9,779 9,882 10,238

Total personal benefits payables — direct 3,137 2,998 2,964 3,683 3,842

Total subsidies payable 1,090 1,482 1,524 1,573 1,595

Grants payables

State and territory governments 42 37 39 34 27

Non-profit organisations 162 161 159 158 159

Private sector 450 451 451 451 451

Overseas 1,995 1,682 1,420 1,652 1,708

Local governments 8 8 8 8 8

Other 1,675 1,687 1,692 1,688 1,688

Total grants payables 4,332 4,026 3,767 3,991 4,040

Total other payables 3,302 3,136 3,055 2,925 2,804

Provisions

Provisions for tax refunds 3,105 3,105 3,105 3,105 3,105

Grants provisions 8,415 6,943 6,163 5,767 5,388

Personal benefits provisions — direct 7,758 7,826 7,938 8,024 8,112

Personal benefits provisions — indirect 3,596 3,871 4,061 4,134 4,221

Provisions for subsidies 5,058 4,886 4,876 5,058 5,348

Other 26,629 27,903 28,336 29,185 30,082

Total provisions 54,560 54,534 54,478 55,274 56,256



Note 19: Reconciliation of cash Estimates

2020-21 2021-22 2022-23 2023-24 2024-25

$m $m $m $m $m

Net operating balance (revenues less expenses) -154,549 -92,713 -90,233 -70,178 -55,736

less Revenues not providing cash

Other 1,660 1,873 1,752 1,779 1,901

Total revenues not providing cash 1,660 1,873 1,752 1,779 1,901

plus Expenses not requiring cash

Increase/(decrease) in employee entitlements 10,062 4,901 5,599 5,858 12,760

Depreciation/amortisation expense 11,851 12,154 12,741 13,624 14,264

Mutually agreed write-downs 2,954 2,746 2,913 3,159 3,331

Other 2,976 1,478 1,922 1,622 1,940

Total expenses not requiring cash 27,843 21,279 23,175 24,263 32,295

plus Cash provided/(used) by working

capital items

Decrease/(increase) in inventories -2,258 -440 -649 -564 -747

Decrease/(increase) in receivables 2,966 -11,276 -8,114 -8,704 -8,778

Decrease/(increase) in other financial assets -1,606 -1,115 -78 -768 -338

Decrease/(increase) in other non-financial

assets 510 -182 -149 -163 -153

Increase/(decrease) in benefits, subsidies and

grants payable -17,648 -790 -325 613 658

Increase/(decrease) in suppliers’ liabilities 97 412 369 176 224

Increase/(decrease) in other provisions and

payables 3,605 993 656 891 817

Net cash provided/(used) by working capital -14,334 -12,398 -8,290 -8,519 -8,317

equals (Net cash from/(to) operating activities) -142,701 -85,704 -77,101 -56,212 -33,657

plus (Net cash from/(to) investing activities) 37,791 -32,445 -34,053 -21,187 -29,356

Net cash from operating activities and

investment -104,910 -118,150 -111,154 -77,399 -63,013

plus (Net cash from/(to) financing activities) 142,150 133,252 93,050 76,182 61,422

equals Net increase/(decrease) in cash 37,240 15,102 -18,104 -1,217 -1,590

Cash at the beginning of the year 9,453 46,693 61,795 43,691 42,473

Net increase/(decrease) in cash 37,240 15,102 -18,104 -1,217 -1,590

Cash at the end of the year 46,693 61,795 43,691 42,473 40,883



Appendix A: Financial reporting standards and budget concepts

The Budget primarily focuses on the financial performance and position of the general

government sector (GGS). The GGS provides public services that are mainly non-market

in nature and for the collective consumption of the community, or involve the transfer

or redistribution of income. These services are largely financed through taxes and other

compulsory levies. AASB 1049 recognises the GGS as a reporting entity.

AASB 1049 Conceptual framework

AASB 1049 seeks to ‘harmonise’ the ABS GFS and AAS.

The reporting framework for AASB 1049 requires the preparation of accrual-based general purpose financial reports, showing government assets, liabilities, revenue, expenses and cash flows. GGS reporting under AASB 1049 aims to provide users with information about the stewardship of each government in relation to its GGS and accountability for the resources entrusted to it; information about the financial position, performance and cash flows of each government’s GGS; and information that facilitates assessments of the macroeconomic impact. AASB 1049 also provides a basis for whole-of-government reporting, including for the PNFC and PFC sectors.

AASB 1049 has adopted the AAS conceptual framework and principles for the

recognition of assets, liabilities, revenues and expenses and their presentation,

measurement and disclosure. In addition, AASB 1049 has broadly adopted the ABS GFS

conceptual framework for presenting government financial statements. In particular,

AASB 1049 requires the GGS to prepare a separate set of financial statements, overriding

AASB 10 Consolidated Financial Statements. AASB 1049 also follows the ABS GFS by

requiring changes in net worth to be split into either transactions or ‘other economic

flows’ and for this to be presented in a single operating statement. AASB 1049 is

therefore broadly consistent with international statistical standards and the

International Monetary Fund’s (IMF) Government Finance Statistics Manual 2014.25

25 Additional information on the Australian accrual GFS framework is available in the ABS

publication Australian System of Government Finance Statistics: Concepts, Sources and Methods, 2015 (cat. no. 5514.0).



All financial data presented in the financial statements are recorded as either stocks

(assets and liabilities) or flows (classified as either transactions or ‘other economic

flows’). Transactions result from a mutually agreed interaction between economic

entities. Despite their compulsory nature, taxes are transactions deemed to occur by

mutual agreement between the government and the taxpayer. Transactions that increase

or decrease net worth (assets less liabilities) are reported as revenues and expenses

respectively in the operating statement.26

A change to the value or volume of an asset or liability that does not result from a

transaction is an ‘other economic flow’. This can include changes in values from market

prices, most actuarial valuations and exchange rates, and changes in volumes from

discoveries, depletion and destruction. All ‘other economic flows’ are reported in the

operating statement.

Consistent with the ABS GFS framework, and in general AAS, the financial statements

record flows in the period in which they occur. As a result, prior period outcomes may

be revised for classification changes relating to information that could reasonably have

been expected to be known in the past, is material in at least one of the affected periods

and can be reliably assigned to the relevant period(s).

Operating statement

The operating statement presents details of transactions in revenues, expenses, the net

acquisition of non-financial assets (net capital investment) and other economic flows for

an accounting period.

Revenues arise from transactions that increase net worth and expenses arise from

transactions that decrease net worth. Revenues less expenses gives the net operating

balance. The net operating balance is similar to the National Accounts concept of

government saving plus capital transfers.

The net acquisition of non-financial assets (net capital investment) equals gross fixed

capital formation, less depreciation, plus changes (investment) in inventories, plus other

transactions in non-financial assets.

‘Other economic flows’ are presented in the operating statement and outline changes in

net worth that are driven by economic flows other than revenues and expenses.

Revenues, expenses and ‘other economic flows’ sum to the total change in net worth

during a period. The majority of ‘other economic flows’ for the Australian Government

GGS arise from price movements in its assets and liabilities.

26 Not all transactions impact net worth. For example, transactions in financial assets and

liabilities do not impact net worth as they represent the swapping of assets and liabilities on the balance sheet.



Net operating balance

The net operating balance is the excess of revenue from transactions over expenses from

transactions. The net operating balance excludes expenditure on the acquisition of

capital assets, but includes non-cash costs such as accruing superannuation entitlements

and the consumption of capital (depreciation). By including all accruing costs, including

depreciation, the net operating balance encompasses the full current cost of providing

government services. This makes it a measure of the sustainability of the government’s

fiscal position over time and provides an indication of the sustainability of the existing

level of government services.

Fiscal balance

The fiscal balance (or net lending/borrowing) is the net operating balance less net capital

investment. The fiscal balance includes the impact of net expenditure (effectively

purchases less sales) on non-financial assets rather than consumption (depreciation) of

non-financial assets.27

The fiscal balance measures the Australian Government’s investment-saving balance. It

measures in accrual terms the gap between government savings plus net capital

transfers, and investment in non-financial assets. As such, it approximates the

contribution of the Australian Government GGS to the balance on the current account

in the balance of payments.

Balance sheet

The balance sheet shows stocks of assets, liabilities and net worth. In accordance with

the UPF, net debt, net financial worth and net financial liabilities are also reported in the

balance sheet.

Net worth

The net worth of the GGS, PNFC and PFC sectors is defined as assets less liabilities. This

differs from the ABS GFS definition for the PNFC and PFC sectors where net worth is

defined as assets less liabilities less shares and other contributed capital. Net worth is an

economic measure of wealth, reflecting the Australian Government’s contribution to the

wealth of Australia.

27 The net operating balance includes consumption of non-financial assets because depreciation

is an expense. Depreciation is deducted in the calculation of net capital investments as the full investment in non-financial assets is included in the calculation of fiscal balance.



Net financial worth

Net financial worth measures a government’s net holdings of financial assets. It is

calculated from the balance sheet as financial assets minus liabilities. This differs from

the ABS GFS definition of net financial worth for the PNFC and PFC sectors, defined as

financial assets, less liabilities, less shares and other contributed capital. Net financial

worth is a broader measure than net debt, in that it incorporates provisions made (such

as superannuation) as well as equity holdings. Net financial worth includes all classes

of financial assets and all liabilities, only some of which are included in net debt. As

non-financial assets are excluded from net financial worth, this is a narrower measure

than net worth. However, it avoids the concerns inherent with the net worth measure

relating to the valuation of non-financial assets and their availability to offset liabilities.

Net financial liabilities

Net financial liabilities comprises total liabilities less financial assets but excludes equity

investments in the other sectors of the jurisdiction. Net financial liabilities is a more

accurate indicator than net debt of a jurisdiction’s fiscal position as it includes

substantial non debt liabilities such as accrued superannuation and long service leave

entitlements. Excluding the net worth of other sectors of government results in a purer

measure of financial worth than net financial worth, as, in general, the net worth of other

sectors of government, in particular the PNFC sector, is backed up by physical assets.

Net debt

Net debt is the sum of interest bearing liabilities less the sum of selected financial assets

(cash and deposits, advances paid, and investments, loans and placements). Financial

assets include the Future Fund’s investments in interest bearing securities and collective

investment vehicles (CIVs). CIVs enable investors to pool their money and invest the

pooled funds, rather than buying securities directly. Net debt does not include

superannuation related liabilities. Net debt is a common measure of the strength of a

government’s financial position. High levels of net debt impose a call on future revenue

flows to service that debt.

The 2015 ABS GFS Manual presents debt in a matrix format, with no single net debt

aggregate identified. The Australian Government continues to report net debt in

accordance with the UPF as described above.



Cash flow statement

The cash flow statement identifies how cash is generated and applied in a single

accounting period. The cash flow statement reflects a cash basis of recording (rather than

an accrual basis) where information is derived indirectly from underlying accrual

transactions and movements in balances. This, in effect, means that transactions are

captured when cash is received or when cash payments are made. Cash transactions are

specifically identified because cash management is considered an integral function of

accrual budgeting.


The underlying cash balance is the cash counterpart of the fiscal balance, reflecting the

Australian Government’s cash investment-saving balance.

For the GGS, the underlying cash balance is calculated as shown below:

Net cash flows from operating activities

plus

Net cash flows from investments in non-financial assets

equals

ABS GFS cash surplus/deficit

plus

Net cash flows from financing activities for leases

equals


Under the Future Fund Act 2006, earnings are required to be reinvested to meet the

Government’s future public sector superannuation liabilities. The Government excluded

net Future Fund cash earnings from the calculation of the underlying cash balance

between 2005-06 and 2019-20. From 2020-21 onwards, net Future Fund cash earnings are

included in the calculation of the underlying cash balance because the Future Fund

becomes available to meet the Government’s superannuation liabilities from this year.

In contrast, net Future Fund earnings have been included in the net operating balance

and fiscal balance for all years because superannuation expenses relating to future cash

payments are recorded in the net operating balance and fiscal balance.

Net Future Fund earnings are separately identified in a related table in Statement 3: Fiscal

Strategy and Outlook, and Statement 11: Historical Australian Government Data.



Headline cash balance

The headline cash balance is calculated by adding net cash flows from investments in

financial assets for policy purposes to the underlying cash balance.

Net cash flows from investments in financial assets for policy purposes include equity

transactions and advances paid. Equity transactions include equity injections into

controlled businesses and privatisations of government businesses. Advances paid

include net loans to the states and net loans to students.

Sectoral classifications

To assist in analysing the public sector, data are presented by institutional sector as

shown in Figure 1. ABS GFS defines the GGS, PNFC and PFC sectors. AASB 1049 has

also adopted this sectoral reporting.

Figure 1: Institutional structure of the public sector

Total public sector

Public financial corporations sector

Total non-financial

public sector

(Includes Reserve Bank of

Australia and other borrowing

authorities)

General government sector Public non-financial corporations sector

(Government departments and

agencies that provide non-market

public services, or involve the

transfer or redistribution of income,

and are funded mainly through

taxes)

(Provide goods and services to

consumers on a commercial basis,

are funded largely by the sale of

these goods and services and are

generally legally distinguishable

from the governments that own

them)

All entities are classified as GGS entities except for the following list of portfolio entities

that are classified as PFC or PNFC (Table A1).

A table which provides a full list of public sector principal entities under the current

portfolio structure is available on the Department of Finance website at

www.finance.gov.au/government/managing-commonwealth-resources/

structure-australian-government-public-sector/pgpa-act-flipchart-and-list.

http://www.finance.gov.au/government/managing-commonwealth-resources/structure-australian-government-public-sector/pgpa-act-flipchart-and-list

http://www.finance.gov.au/government/managing-commonwealth-resources/structure-australian-government-public-sector/pgpa-act-flipchart-and-list



Table A10.1: Entities outside of the general government sector — 2020-21

Public financial corporations

Attorney-General’s Portfolio

• Coal Mining Industry (Long Service Leave Funding) Corporation

Foreign Affairs and Trade Portfolio

• Export Finance and Insurance Corporation (also referred to as Export Finance Australia)

Industry, Science, Energy and Resources Portfolio

• CSIRO FollowOn Services Pty Ltd

• CSIRO FollowOn Services 2 Pty Ltd

• CSIRO General Partner Pty Ltd

• CSIRO General Partner 2 Pty Ltd

• CSIROGP Fund 2 Pty Ltd

Treasury Portfolio

• Australian Reinsurance Pool Corporation

• National Housing Finance and Investment Corporation*

• Reserve Bank of Australia

Public non-financial corporations

Finance Portfolio

• ASC Pty Ltd

• Australian Naval Infrastructure Pty Ltd

Industry, Science, Energy and Resources Portfolio

• ANSTO Nuclear Medicine Pty Ltd

• Snowy Hydro Limited

Infrastructure, Transport, Regional Development and Communications Portfolio

• Airservices Australia

• Australian Postal Corporation (Australia Post)

• Australian Rail Track Corporation Limited

• Moorebank Intermodal Company Limited

• nbn Co Ltd

• WSA Co Ltd



Table A10.1: Entities outside of the general government sector — 2020-21 (continued)

Public non-financial corporations (continued)

Prime Minister and Cabinet Portfolio

• Voyages Indigenous Tourism Australia Pty Ltd

Social Services Portfolio

• Australian Hearing Services (Hearing Australia)

* The National Housing Finance and Investment Corporation (NHFIC), a corporate Commonwealth entity, operates an affordable housing bond aggregator to encourage greater private and institutional investment and provide cheaper and longer-term finance to registered providers of affordable housing. The NHFIC bond aggregator is a PFC. NHFIC also administers the National Housing Infrastructure Facility (the Facility). The

Facility is included in the GGS.


Appendix B: Assets and Liabilities

The Australian Government’s major assets and liabilities

Assets

The Government’s total assets are estimated to be $693.2 billion in 2020-21, increasing to

$802.7 billion by the end of the forward estimates.

The Government’s financial assets28 are estimated to be $509.9 billion in 2020-21,

increasing to $582.7 billion by the end of the forward estimates.

The Government’s non-financial assets are estimated to be $183.3 billion in 2020-21,

increasing to $220.0 billion by the end of the forward estimates.

Future Fund

The Future Fund was established in 2006 to accumulate financial assets and invest them

on behalf of the Australian Government to address the Government’s unfunded

superannuation liability.

The Investment Mandate for the Future Fund sets a benchmark rate of return of at least

CPI plus 4.0 to 5.0 per cent per annum over the long term. The Investment Mandate

gives guidance to the Future Fund Board of Guardians (the Board) in relation to its

investment strategy. The Board is independently responsible for the investment

decisions of the Future Fund. The Investment Mandate also requires the Board to take

an acceptable, but not excessive, level of risk for the Future Fund, measured in terms

such as the probability of losses in a particular year.

Between establishment and 31 March 2021, the average return has been

7.8 per cent per annum against a target of 6.6 per cent. For the 12-month period

ending 31 March 2021, the Future Fund’s return was 10.1 per cent against the

benchmark of 5.1 per cent. The Future Fund was valued at $178.6 billion at

31 March 2021.

The Board continues to maintain clear objectives and manage the portfolio in line with

its mandate and strategy. Table 10B.1 shows changes in the asset allocation of the

Future Fund since 30 June 2020.

28 Financial assets include loans. Information on Government loans, including the Higher

Education Loan Program, can be found in Statement 9: Statement of Risks.



Table 10B.1: Asset allocation of the Future Fund 30 June 2020 30 June 2020 31 March 2021 31 March 2021

Asset class $m % of Fund $m % of Fund

Australian equities 11,012 6.8 12,585 7.0

Global equities

Developed markets 30,810 19.1 29,939 16.8

Emerging markets 13,074 8.1 14,876 8.3

Private equity 24,424 15.2 26,056 14.6

Property 9,285 5.8 10,729 6.0

Infrastructure and Timberland 11,420 7.1 12,980 7.3

Debt securities 12,852 8.0 12,531 7.0

Alternative assets 20,832 12.9 25,711 14.4

Cash 27,404 17.0 33,197 18.6

Total Future Fund assets 161,112 100.0 178,604 100.0

Note: Figures may not sum due to rounding.

Medical Research Future Fund

The Medical Research Future Fund (MRFF) was established on 26 August 2015 to

provide additional funding for medical research and medical innovation.

Since inception, the Government has contributed $20 billion to the MRFF fulfilling the

commitment in the 2014-15 Budget to grow the MRFF to $20 billion through annual

credits. There are no further credits scheduled for the MRFF.

The MRFF is managed by the Future Fund Board of Guardians (the Board).

The Treasurer and Minister for Finance have set an Investment Mandate for the MRFF,

which provides broad direction to the Board in relation to its investment strategy.

The MRFF Investment Mandate sets a benchmark return of the Reserve Bank of

Australia’s Cash Rate target plus 1.5 to 2.0 per cent per annum, net of costs, over a rolling

10-year term.

Since inception to 31 March 2021, MRFF investments have returned

4.2 per cent per annum against a target return of 2.7 per cent per annum. The MRFF was

valued at $21.4 billion at 31 March 2021.

DisabilityCare Australia Fund

The DisabilityCare Australia Fund (DCAF) was established on 1 July 2014 to assist the

Commonwealth and the State and Territory governments with spending directly related

to the National Disability Insurance Scheme (NDIS).

The DCAF is funded by revenue raised from the 0.5 per cent increase in the Medicare

levy to 2 per cent. As at 31 March 2021, the DCAF had received credits totalling

$23.2 billion. Since inception, $9.0 billion has been paid from the DCAF.



The investments of the DCAF are managed by the Future Fund Board of Guardians

(the Board). The Treasurer and Minister for Finance have set an Investment Mandate for

the DCAF, which provides guidance to the Board in relation to its investment strategy

for the DCAF. The DCAF Investment Mandate sets a benchmark return on the DCAF of

the Australian three-month bank bill swap rate plus 0.3 per cent per annum calculated

on a rolling 12-month basis (net of fees). In achieving its objectives, the Board must invest

in such a way as to minimise the probability of capital losses over a 12-month horizon.

For the 12-month period ending 31 March 2021, the DCAF’s return was 0.8 per cent

against the benchmark of 0.4 per cent. The DCAF was valued at $15.3 billion

at 31 March 2021.

Aboriginal and Torres Strait Islander Land and Sea Future Fund

The Government established the Aboriginal and Torres Strait Islander Land and

Sea Future Fund (ATSILSFF) on 1 February 2019 to support payments to the Indigenous

Land and Sea Corporation (ILSC).

The ATSILSFF was seeded with the capital of the former

Aboriginal and Torres Strait Islander Land Account (Land Account) — approximately

$2 billion. The Land Account was abolished on the establishment of the ATSILSFF.

The investments of the ATSILSFF are managed by the Future Fund Board of Guardians


the ATSILSFF, which provides broad direction to the Board in relation to its investment

strategy. The ATSILSFF Investment Mandate sets a long-term benchmark return of

CPI plus 2.0 to 3.0 per cent per annum, net of costs.

For the 12-month period ending 31 March 2021, the ATSILSFF has returned 11.7 per cent

against a benchmark of 3.1 per cent. The ATSILSFF was valued at $2.0 billion

at 31 March 2021.

Future Drought Fund

The Government established the Future Drought Fund (FDF) on 1 September 2019 to

fund initiatives that enhance future drought resilience, preparedness and response

across Australia.

The FDF was seeded with the uncommitted balance of the Building Australia Fund

(BAF) — approximately $4 billion. The BAF was abolished on the establishment of the

FDF. The Fund provides disbursements of $100 million per annum, with the

first disbursement made in July 2020.



The investments of the FDF are managed by the Future Fund Board of Guardians


the FDF, which provides broad direction to the Board in relation to its investment

strategy. The FDF Investment Mandate sets a long-term benchmark return of CPI plus

2.0 to 3.0 per cent per annum, net of costs.

For the 12-month period ending 31 March 2021, the FDF has returned 11.5 per cent

against the benchmark of 3.1 per cent. The FDF was valued at $4.4 billion

at 31 March 2021.

Emergency Response Fund

The Government established the Emergency Response Fund (ERF) on 12 December 2019

to fund initiatives which enhance future national disaster response and recovery efforts

across Australia.

The ERF was seeded with the uncommitted balance of the Education Investment Fund

(EIF) ⎯ approximately $4 billion. The EIF was abolished on establishment of the ERF.

Disbursements from the ERF are limited to $200 million in each year that the

Government decides to access the fund. This is comprised of up to $150 million for

emergency response and recovery after a significant or catastrophic natural disaster, and

up to $50 million to build resilience to prepare for or reduce the risk of future

natural disasters.

The investments of the ERF are managed by the Future Fund Board of Guardians


the ERF, which provides broad direction to the Board in relation to its investment

strategy. The ERF Investment Mandate sets a long-term benchmark return of CPI plus

2.0 to 3.0 per cent per annum, net of costs.

For the 12-month period ending 31 March 2021, the ERF has returned 11.5 per cent

against the benchmark of 3.1 per cent. The ERF was valued at $4.5 billion at

31 March 2021.

National Broadband Network

NBN Co Limited’s (NBN Co) key objective is to ensure that all Australians have access

to fast and reliable broadband, at affordable prices, and at least cost to taxpayers.

The Government has provided $29.5 billion in equity to NBN Co, with the final

contributions made in 2017-18.



The Government also provided a loan of $19.5 billion to NBN Co on commercial terms,

which was fully drawn down in July 2020. In the 2020-21 MYEFO the Government

amended the loan agreement and allowed NBN Co to access private debt markets to

finance the repayments. NBN Co has started repaying the loan with around $5.6 billion

expected to be repaid in 2020-21.

Clean Energy Finance Corporation

The Clean Energy Finance Corporation (CEFC) was established as a Commonwealth

Authority in August 2012 through the Clean Energy Finance Corporation Act 2012

(CEFC Act).

Under the CEFC Act, the CEFC has been provided $10 billion to invest in renewable

energy, low emissions technology and energy efficiency projects. The CEFC will also

administer the $1 billion Grid Reliability Fund when established, to support investment

in new energy generation, storage and transmission infrastructure.

The CEFC continues to invest funds and manage its investments. Investment decisions

are made by an independent board consistent with the CEFC Act and the CEFC’s

investment mandate.

Liabilities

The Government’s total liabilities are estimated to be $1.3 trillion in 2020-21, increasing

to $1.7 trillion by the end of the forward estimates.

The Government’s major liabilities are Australian Government Securities on issue

(see Statement 7: Debt Statement for further information) and public sector employee

superannuation liabilities.

Public sector employee superannuation liabilities

Public sector employee superannuation entitlements relating to past and present civilian

employees and military personnel are a financial liability on the Government’s balance

sheet. By the end of the forward estimates period, the Government’s superannuation

liabilities are projected to be $269.9 billion and approximately $427.8 billion

at 30 June 2050.

These liabilities represent the present value of future unfunded superannuation benefits

and are based on an actuarially determined discount rate. The long-term nature of the

unfunded superannuation liabilities requires the use of a discount rate that best matches

the duration of the liabilities. The use of a long-term discount rate for budget purposes

avoids the volatility that would occur by using current market yields on Government

bonds, which continually change. The value recorded on the balance sheet is highly

sensitive to the discount rate used.



In preparing the latest Long Term Cost Reports for the civilian and military schemes,

the scheme actuaries have determined that a discount rate of CPI plus 2.5 per cent should

be applied.

The Australian Government has never fully funded its superannuation liabilities in

relation to defined benefit schemes. However, the Future Fund was established in 2006

to help finance the Government’s unfunded superannuation liabilities.

For civilian employees, the major defined benefit schemes are the Commonwealth

Superannuation Scheme and the Public Sector Superannuation Scheme. These schemes

were closed to new members in 1990 and 2005 respectively. The Public Sector

Superannuation accumulation plan was introduced on 1 July 2005 and provides fully

funded accumulation benefits for new civilian employees from that date.

For military personnel, the defined benefit schemes are the Defence Force Retirement

and Death Benefits Scheme, the Defence Forces Retirement Benefits Scheme and the

Military Superannuation and Benefits Scheme (MSBS). Following the closure of the

MSBS on 30 June 2016, all defined benefit military schemes are now closed to new

members. A new military superannuation accumulation scheme, ADF Super,

commenced on 1 July 2016. ADF Super is accompanied by a statutory death and

disability arrangement ADF cover.

While there have not been any new members to the public service and military defined

benefit schemes since closure in 2005 and 2016 respectively, the value of the

Government’s unfunded superannuation liabilities (valued using the long-term

discount rate) is projected to continue growing (in nominal terms) into the immediate

future ⎯ although it is projected to decrease as a proportion of GDP. The increase in the

liabilities partly results from the time value of money which recognises future benefits

being closer to maturity each year. It also results from the accruing entitlements to

current members of the civilian and military defined benefit schemes, and members

covered by the statutory death and disability arrangement ADF cover.

As the superannuation liabilities are included in the Government’s net worth and net

financial worth aggregates, revaluations of the liabilities have an impact on

these aggregates.

Statement 11: Historical Australian Government Data | Page 353

Statement 11: Historical Australian Government Data

This statement reports historical data for the Australian Government fiscal aggregates across the general government, public non-financial corporations and non-financial public sectors.

Table 11.1: Australian Government general government sector receipts, payments, net Future Fund earnings and underlying cash balance............ 358

Table 11.2: Australian Government general government sector net cash flows from investments in financial assets for policy purposes and headline cash balance ................................................................................. 360

Table 11.3: Australian Government general government sector taxation receipts, non-taxation receipts and total receipts ........................................ 362

Table 11.4: Australian Government general government sector net debt and net interest payments .................................................................................. 364

Table 11.5: Australian Government general government sector face value of Australian Government Securities (AGS) on issue and interest paid .......... 366

Table 11.6: Australian Government general government sector revenue, expenses, net operating balance, net capital investment and fiscal balance ........................................................................................................ 368

Table 11.7: Australian Government general government sector net worth and net financial worth ........................................................................................ 370

Table 11.8: Australian Government general government sector accrual taxation revenue, non-taxation revenue and total revenue ......................... 371

Table 11.9: Australian Government cash receipts, payments and surplus by institutional sector ........................................................................................ 372

Table 11.10: Australian Government accrual revenue, expenses and fiscal balance by institutional sector ...................................................................... 374

Table 11.11: Australian Government general government sector receipts, payments, underlying cash balance, net debt and net interest payments presented on a real per capita basis ........................................... 376


Statement 11: Historical Australian Government Data

Statement 11 reports historical data for the Australian Government fiscal aggregates

across the general government, public non-financial corporations and non-financial

public sectors.

Data sources

Data are sourced from Australian Government Final Budget Outcomes, the Australian

Bureau of Statistics (ABS), the Australian Office of Financial Management and

Australian Government Consolidated Financial Statements.

• Accrual data from 1996-97 onwards and cash data, net debt data, net financial worth

data and net worth data from 1999-2000 onwards are sourced from Australian

Government Final Budget Outcomes. Back-casting adjustments for accounting

classification changes and other revisions have been made from 1998-99 onwards

where applicable.

• Cash data prior to 1999-2000 are sourced from ABS data, which have been calculated

using methodology consistent with that used for later years in ABS cat. no. 5512.0

Government Finance Statistics.

• Net debt data prior to 1999-2000 are from ABS cat. no. 5512.0 Government Finance

Statistics 2003-04 in 1998-99, ABS cat. no. 5501.0 Government Financial Estimates

1999-2000 and ABS cat. no. 5513.0 Public Sector Financial Assets and Liabilities 1998

from 1987-88 to 1997-98, and Treasury estimates (see Treasury’s Economic Roundup,

Spring 1996, pages 97-103) prior to 1987-88.

Comparability of data across years

The data set contains a number of structural breaks owing to accounting classification

differences and changes to the structure of the budget which cannot be eliminated

through back-casting because of data limitations. These breaks can affect the

comparability of data across years, especially when the analysis is taken over a large

number of years. Specific factors causing structural breaks include:

• Most recent accounting classification changes that require revisions to the historical

series have been back-cast (where applicable) to 1998-99, ensuring that data are

consistent across the accrual period from 1998-99 onwards. However, because of data

limitations, these changes have not been back-cast to earlier years.


Page 356 | Statement 11: Historical Australian Government Data

• From 2019-20 onwards, as a result of the implementation of the accounting standard

AASB 16 Leases, the distinction between operating and finance leases for lessees has

been removed. This change impacted a number of budget aggregates, in particular

net debt and net financial worth. Due to data limitations, these changes have not been

back cast to earlier years.

• From 2005-06 onwards, underlying Government Finance Statistics (GFS) data are

provided by agencies in accordance with Australian Accounting Standards (AAS),

which includes International Financial Reporting Standards (IFRS) as adopted in

Australia. Prior to 2005-06, underlying GFS data are based on data provided by

agencies applying AAS prior to the adoption of IFRS.

• Prior to 1999-2000, Australian Government general government sector debt

instruments are valued at historic cost, whereas from 1999-2000 onwards they are

valued at market prices (consistent with accrual GFS standards). This affects net debt

and net interest payments.

• Cash data up to and including 1997-98 are calculated under a cash accounting

framework, while cash data from 1998-99 onwards are derived from an accrual

accounting framework.29 Although the major methodological differences associated

with the move to the accrual framework have been eliminated through back-casting,

comparisons across the break may still be affected by changes to some data sources

and collection methodologies.

• Adjustments in the coverage of agencies are included in the accounts of the different

sectors. These include the reclassification of Central Banking Authorities from the

general government to the public financial corporations sector in 1998-99, and

subsequent back-casting to account for this change.

• Changes have been made in arrangements for transfer payments, where tax

concessions or rebates are replaced by payments through the social security system.

This has the effect of increasing both cash receipts and payments, as compared with

earlier periods, but not changing cash balances. Changes in the opposite direction

reduce both cash payments and receipts.

• Classification differences in the data relating to the period prior to 1976-77 mean that

earlier data may not be entirely consistent with data for 1976-77 onwards.

29 Prior to the 2008-09 Budget, cash data calculated under the cash accounting framework was

used up to and including 1998-99. In the 2008-09 Budget, cash data prior to 1998-99 have been replaced by ABS data derived from the accrual framework.



Revisions to previously published data

Under the accrual GFS framework and generally under AAS, flows are recorded in the

period in which they occurred. As a result, prior period outcomes may be revised for

classification changes relating to information that could reasonably have been expected

to be known in the past, is material in at least one of the affected periods, and can be

reliably assigned to the relevant period(s).

One item was reclassified in the 2020-21 Budget and data have been further revised in

the 2021-22 Budget to improve accuracy and comparability through time. From 2020-21,

the value of Debt Not Expected to be Repaid on initial recognition of income contingent

concessional loans is reported as an expense rather than as a valuation adjustment. The

expenses, net operating balance and fiscal balance series for the general government

sector and non-financial public sector, as applicable, have been back cast from 1996-97

to reflect this reclassification.



Table 11.1: Australian Government general government sector receipts, payments, net Future Fund earnings and underlying cash balance(a)

Net Future Underlying

Fund cash Receipts(b) Payments(c)

earnings balance(d) Per cent

Per cent real Per cent

Per cent

$m of GDP $m growth(f) of GDP $m $m of GDP

1970-71 8,290 20.6 7,389 na 18.3 - 901 2.2

1971-72 9,135 20.5 8,249 4.1 18.5 - 886 2.0

1972-73 9,735 19.6 9,388 7.7 18.9 - 348 0.7

1973-74 12,228 20.3 11,078 4.2 18.4 - 1,150 1.9

1974-75 15,643 22.0 15,463 19.9 21.7 - 181 0.3

1975-76 18,727 22.5 20,225 15.7 24.3 - -1,499 -1.8

1976-77 21,890 22.8 23,157 0.6 24.1 - -1,266 -1.3

1977-78 24,019 22.9 26,057 2.7 24.8 - -2,037 -1.9

1978-79 26,129 22.0 28,272 0.3 23.8 - -2,142 -1.8

1979-80 30,321 22.6 31,642 1.5 23.5 - -1,322 -1.0

1980-81 35,993 23.7 36,176 4.6 23.8 - -184 -0.1

1981-82 41,499 23.6 41,151 2.9 23.4 - 348 0.2

1982-83 45,463 24.0 48,810 6.3 25.8 - -3,348 -1.8

1983-84 49,981 23.4 56,990 9.4 26.7 - -7,008 -3.3

1984-85 58,817 25.0 64,853 9.1 27.6 - -6,037 -2.6

1985-86 66,206 25.4 71,328 1.5 27.4 - -5,122 -2.0

1986-87 74,724 26.2 77,158 -1.1 27.0 - -2,434 -0.9

1987-88 83,491 25.8 82,039 -0.9 25.3 - 1,452 0.4

1988-89 90,748 24.7 85,326 -3.1 23.2 - 5,421 1.5

1989-90 98,625 24.4 92,684 0.6 22.9 - 5,942 1.5

1990-91 100,227 24.2 100,665 3.1 24.3 - -438 -0.1

1991-92 95,840 22.7 108,472 5.7 25.7 - -12,631 -3.0

1992-93 97,633 22.0 115,751 5.6 26.1 - -18,118 -4.1

1993-94 103,824 22.3 122,009 3.5 26.2 - -18,185 -3.9

1994-95 113,458 22.9 127,619 1.4 25.8 - -14,160 -2.9

1995-96 124,429 23.6 135,538 1.9 25.7 - -11,109 -2.1

1996-97 133,592 24.1 139,689 1.7 25.2 - -6,099 -1.1

1997-98 140,736 23.9 140,587 0.6 23.9 - 149 0.0

1998-99 152,063 24.5 148,175 4.1 23.9 - 3,889 0.6

1999-00 166,199 25.1 153,192 1.0 23.2 - 13,007 2.0

2000-01 182,996 26.0 177,123 9.1 25.1 - 5,872 0.8

2001-02 187,588 24.9 188,655 3.5 25.0 - -1,067 -0.1

2002-03 204,613 25.5 197,243 1.4 24.6 - 7,370 0.9

2003-04 217,775 25.3 209,785 3.9 24.4 - 7,990 0.9

2004-05 235,984 25.6 222,407 3.5 24.1 - 13,577 1.5

2005-06 255,943 25.7 240,136 4.6 24.1 51 15,757 1.6

2006-07 272,637 25.1 253,321 2.5 23.3 2,127 17,190 1.6

2007-08 294,917 25.0 271,843 3.8 23.1 3,319 19,754 1.7

2008-09 292,600 23.2 316,046 12.7 25.1 3,566 -27,013 -2.1

2009-10 284,662 21.9 336,900 4.2 25.9 2,256 -54,494 -4.2



Table 11.1: Australian Government general government sector receipts, payments, net Future Fund earnings and underlying cash balance(a) (continued) Net Future Underlying

Fund cash

Receipts(b) Payments(c) earnings balance(d)

Per cent

Per cent real Per cent

Per cent $m of GDP $m growth(f) of GDP $m $m of GDP

2010-11 302,024 21.3 346,102 -0.4 24.4 3,385 -47,463 -3.4

2011-12 329,874 22.0 371,032 4.8 24.7 2,203 -43,360 -2.9

2012-13 351,052 22.9 367,204 -3.2 23.9 2,682 -18,834 -1.2

2013-14 360,322 22.5 406,430 7.8 25.4 2,348 -48,456 -3.0

2014-15 378,301 23.3 412,079 -0.3 25.4 4,089 -37,867 -2.3

2015-16 386,924 23.3 423,328 1.3 25.5 3,202 -39,606 -2.4

2016-17 409,868 23.3 439,375 2.0 24.9 3,644 -33,151 -1.9

2017-18 446,905 24.2 452,742 1.1 24.5 4,305 -10,141 -0.5

2018-19 485,286 24.9 478,098 3.9 24.5 7,878 -690 0.0

2019-20 469,398 23.6 549,634 13.4 27.7 5,036 -85,272 -4.3

2020-21 (e) 499,831 24.3 660,783 18.4 32.1 5,504 -160,952 -7.8

2021-22 (e) 482,053 22.6 588,672 -12.6 27.6 2,999 -106,619 -5.0

2022-23 (e) 494,000 22.7 593,267 -1.4 27.3 3,200 -99,266 -4.6

2023-24 (e) 532,855 23.4 612,368 0.8 26.9 3,402 -79,514 -3.5

2024-25 (e) 571,969 23.9 628,936 0.2 26.2 3,618 -56,966 -2.4

(a) Data have been revised in the 2021-22 Budget to improve accuracy and comparability through time. (b) Receipts are equal to cash receipts from operating activities and sales of non-financial assets. (c) Payments are equal to cash payments for operating activities, purchases of non-financial assets and net

cash flows from financing activities for leases. (d) Between 2005-06 and 2019-20, the underlying cash balance is equal to receipts less payments, less net

Future Fund earnings. In all other years, the underlying cash balance is equal to receipts less payments. (e) Estimates. (f) Real spending growth is calculated using the Consumer Price Index as the deflator.



Table 11.2: Australian Government general government sector net cash flows from investments in financial assets for policy purposes and headline cash balance(a)

Net cash flows from investments in Headline financial assets for cash Receipts Payments policy purposes(b) balance(c) Per cent Per cent

$m $m $m of GDP $m of GDP

1970-71 8,290 7,389 -851 -2.1 50 0.1

1971-72 9,135 8,249 -987 -2.2 -101 -0.2

1972-73 9,735 9,388 -977 -2.0 -629 -1.3

1973-74 12,228 11,078 -1,275 -2.1 -125 -0.2

1974-75 15,643 15,463 -2,648 -3.7 -2,467 -3.5

1975-76 18,727 20,225 -2,040 -2.5 -3,539 -4.3

1976-77 21,890 23,157 -1,530 -1.6 -2,796 -2.9

1977-78 24,019 26,057 -1,324 -1.3 -3,361 -3.2

1978-79 26,129 28,272 -1,074 -0.9 -3,216 -2.7

1979-80 30,321 31,642 -702 -0.5 -2,024 -1.5

1980-81 35,993 36,176 -962 -0.6 -1,146 -0.8

1981-82 41,499 41,151 -1,008 -0.6 -660 -0.4

1982-83 45,463 48,810 -1,363 -0.7 -4,711 -2.5

1983-84 49,981 56,990 -1,136 -0.5 -8,144 -3.8

1984-85 58,817 64,853 -922 -0.4 -6,959 -3.0

1985-86 66,206 71,328 -810 -0.3 -5,932 -2.3

1986-87 74,724 77,158 -545 -0.2 -2,979 -1.0

1987-88 83,491 82,039 657 0.2 2,109 0.7

1988-89 90,748 85,326 168 0.0 5,589 1.5

1989-90 98,625 92,684 1,217 0.3 7,159 1.8

1990-91 100,227 100,665 1,563 0.4 1,125 0.3

1991-92 95,840 108,472 2,156 0.5 -10,475 -2.5

1992-93 97,633 115,751 2,471 0.6 -15,647 -3.5

1993-94 103,824 122,009 3,447 0.7 -14,738 -3.2

1994-95 113,458 127,619 1,546 0.3 -12,614 -2.6

1995-96 124,429 135,538 5,188 1.0 -5,921 -1.1

1996-97 133,592 139,689 7,241 1.3 1,142 0.2

1997-98 140,736 140,587 15,154 2.6 15,303 2.6

1998-99 152,063 148,175 6,948 1.1 10,837 1.7

1999-00 166,199 153,192 9,500 1.4 22,507 3.4

2000-01 182,996 177,123 5,673 0.8 11,545 1.6

2001-02 187,588 188,655 3,422 0.5 2,355 0.3

2002-03 204,613 197,243 -229 0.0 7,141 0.9

2003-04 217,775 209,785 -452 -0.1 7,538 0.9

2004-05 235,984 222,407 -1,139 -0.1 12,438 1.3

2005-06 255,943 240,136 -1,647 -0.2 14,160 1.4

2006-07 272,637 253,321 7,403 0.7 26,720 2.5

2007-08 294,917 271,843 5,108 0.4 28,181 2.4

2008-09 292,600 316,046 -7,889 -0.6 -31,336 -2.5

2009-10 284,662 336,900 -4,278 -0.3 -56,516 -4.3



Table 11.2: Australian Government general government sector net cash flows from investments in financial assets for policy purposes and headline cash balance(a) (continued) Net cash flows

from investments in Headline financial assets for cash Receipts Payments policy purposes(b) balance(c) Per cent Per cent

$m $m $m of GDP $m of GDP

2010-11 302,024 346,102 -7,028 -0.5 -51,106 -3.6

2011-12 329,874 371,032 -5,866 -0.4 -47,023 -3.1

2012-13 351,052 367,204 -4,802 -0.3 -20,954 -1.4

2013-14 360,322 406,430 -6,371 -0.4 -52,479 -3.3

2014-15 378,301 412,079 -5,158 -0.3 -38,936 -2.4

2015-16 386,924 423,328 -12,684 -0.8 -49,088 -3.0

2016-17 409,868 439,375 -13,501 -0.8 -43,008 -2.4

2017-18 446,905 452,742 -20,041 -1.1 -25,878 -1.4

2018-19 485,286 478,098 -14,387 -0.7 -7,199 -0.4

2019-20 469,398 549,634 -13,632 -0.7 -93,868 -4.7

2020-21 (e) 499,831 660,783 -7,286 -0.4 -168,238 -8.2

2021-22 (e) 482,053 588,672 -10,428 -0.5 -117,047 -5.5

2022-23 (e) 494,000 593,267 -10,140 -0.5 -109,407 -5.0

2023-24 (e) 532,855 612,368 4,096 0.2 -75,417 -3.3

2024-25 (e) 571,969 628,936 -8,182 -0.3 -65,148 -2.7

(a) Data have been revised in the 2021-22 Budget to improve accuracy and comparability through time. (b) Prior to 1999-2000, net cash flows from investments in financial assets for policy purposes were referred

to as ‘net advances’. A negative number reflects a cash outflow, while a positive number reflects a cash inflow.

(c) Headline cash balance is equal to receipts less payments, plus net cash flows from investments in financial assets for policy purposes. Receipts and payments are identical to Table 11.1.

(e) Estimates.



Table 11.3: Australian Government general government sector taxation receipts, non-taxation receipts and total receipts(a)

Taxation receipts Non-taxation receipts Total receipts(b) Per cent Per cent Per cent

$m of GDP $m of GDP $m of GDP

1970-71 7,193 17.8 1,097 2.7 8,290 20.6

1971-72 7,895 17.7 1,240 2.8 9,135 20.5

1972-73 8,411 16.9 1,324 2.7 9,735 19.6

1973-74 10,832 18.0 1,396 2.3 12,228 20.3

1974-75 14,141 19.9 1,502 2.1 15,643 22.0

1975-76 16,920 20.3 1,807 2.2 18,727 22.5

1976-77 19,714 20.5 2,176 2.3 21,890 22.8

1977-78 21,428 20.4 2,591 2.5 24,019 22.9

1978-79 23,409 19.7 2,720 2.3 26,129 22.0

1979-80 27,473 20.4 2,848 2.1 30,321 22.6

1980-81 32,641 21.5 3,352 2.2 35,993 23.7

1981-82 37,880 21.6 3,619 2.1 41,499 23.6

1982-83 41,025 21.7 4,438 2.3 45,463 24.0

1983-84 44,849 21.0 5,132 2.4 49,981 23.4

1984-85 52,970 22.5 5,847 2.5 58,817 25.0

1985-86 58,841 22.6 7,365 2.8 66,206 25.4

1986-87 66,467 23.3 8,257 2.9 74,724 26.2

1987-88 75,076 23.2 8,415 2.6 83,491 25.8

1988-89 83,452 22.7 7,296 2.0 90,748 24.7

1989-90 90,773 22.5 7,852 1.9 98,625 24.4

1990-91 92,739 22.4 7,488 1.8 100,227 24.2

1991-92 87,364 20.7 8,476 2.0 95,840 22.7

1992-93 88,760 20.0 8,873 2.0 97,633 22.0

1993-94 93,362 20.0 10,462 2.2 103,824 22.3

1994-95 104,921 21.2 8,537 1.7 113,458 22.9

1995-96 115,700 21.9 8,729 1.7 124,429 23.6

1996-97 124,559 22.4 9,033 1.6 133,592 24.1

1997-98 130,984 22.3 9,752 1.7 140,736 23.9

1998-99 138,420 22.3 13,643 2.2 152,063 24.5

1999-00 151,313 22.9 14,887 2.3 166,199 25.1

2000-01 170,354 24.2 12,641 1.8 182,996 26.0

2001-02 175,371 23.3 12,218 1.6 187,588 24.9

2002-03 192,391 24.0 12,222 1.5 204,613 25.5

2003-04 206,734 24.0 11,041 1.3 217,775 25.3

2004-05 223,986 24.3 11,999 1.3 235,984 25.6

2005-06 241,987 24.3 13,956 1.4 255,943 25.7

2006-07 258,252 23.8 14,385 1.3 272,637 25.1

2007-08 279,317 23.7 15,600 1.3 294,917 25.0

2008-09 273,674 21.7 18,926 1.5 292,600 23.2

2009-10 262,167 20.1 22,495 1.7 284,662 21.9



Table 11.3: Australian Government general government sector taxation receipts, non-taxation receipts and total receipts(a) (continued) Taxation receipts Non-taxation receipts Total receipts(b)

Per cent Per cent Per cent $m of GDP $m of GDP $m of GDP

2010-11 282,106 19.9 19,918 1.4 302,024 21.3

2011-12 311,269 20.8 18,606 1.2 329,874 22.0

2012-13 327,835 21.3 23,218 1.5 351,052 22.9

2013-14 340,283 21.3 20,038 1.3 360,322 22.5

2014-15 353,883 21.8 24,418 1.5 378,301 23.3

2015-16 362,387 21.8 24,537 1.5 386,924 23.3

2016-17 379,271 21.5 30,597 1.7 409,868 23.3

2017-18 418,053 22.6 28,853 1.6 446,905 24.2

2018-19 448,579 23.0 36,707 1.9 485,286 24.9

2019-20 431,775 21.7 37,623 1.9 469,398 23.6

2020-21 (e) 459,470 22.3 40,361 2.0 499,831 24.3

2021-22 (e) 445,599 20.9 36,454 1.7 482,053 22.6

2022-23 (e) 455,328 20.9 38,672 1.8 494,000 22.7

2023-24 (e) 493,106 21.6 39,748 1.7 532,855 23.4

2024-25 (e) 525,353 21.9 46,616 1.9 571,969 23.9

(a) Data have been revised in the 2021-22 Budget to improve accuracy and comparability through time. (b) Receipts are equal to receipts from operating activities and sales of non-financial assets. Receipts are

identical to Table 11.1. (e) Estimates.



Table 11.4: Australian Government general government sector net debt and net interest payments(a)

Net debt(b) Net interest payments(c)

$m Per cent of GDP $m Per cent of GDP

1970-71 344 0.9 -189 -0.5

1971-72 -496 -1.1 -245 -0.6

1972-73 -790 -1.6 -252 -0.5

1973-74 -1,851 -3.1 -286 -0.5

1974-75 -1,901 -2.7 -242 -0.3

1975-76 -341 -0.4 -330 -0.4

1976-77 898 0.9 -62 -0.1

1977-78 2,896 2.8 4 0.0

1978-79 4,983 4.2 254 0.2

1979-80 6,244 4.6 440 0.3

1980-81 6,356 4.2 620 0.4

1981-82 5,919 3.4 680 0.4

1982-83 9,151 4.8 896 0.5

1983-84 16,015 7.5 1,621 0.8

1984-85 21,896 9.3 2,813 1.2

1985-86 26,889 10.3 3,952 1.5

1986-87 29,136 10.2 4,762 1.7

1987-88 27,344 8.4 4,503 1.4

1988-89 21,981 6.0 4,475 1.2

1989-90 16,123 4.0 4,549 1.1

1990-91 16,915 4.1 3,636 0.9

1991-92 31,041 7.3 3,810 0.9

1992-93 55,218 12.5 3,986 0.9

1993-94 70,223 15.1 5,628 1.2

1994-95 83,492 16.9 7,292 1.5

1995-96 95,831 18.2 8,861 1.7

1996-97 96,281 17.3 9,489 1.7

1997-98 82,935 14.1 8,279 1.4

1998-99 72,065 11.6 8,649 1.4

1999-00 57,661 8.7 7,514 1.1

2000-01 46,802 6.6 6,195 0.9

2001-02 42,263 5.6 5,352 0.7

2002-03 33,403 4.2 3,758 0.5

2003-04 26,995 3.1 3,040 0.4

2004-05 15,604 1.7 2,502 0.3

2005-06 331 0.0 2,303 0.2

2006-07 -24,288 -2.2 228 0.0

2007-08 -39,958 -3.4 -1,015 -0.1

2008-09 -11,285 -0.9 -1,196 -0.1

2009-10 47,874 3.7 2,386 0.2



Table 11.4: Australian Government general government sector net debt and net interest payments(a) (continued) Net debt(b) Net interest payments(c)

$m Per cent of GDP $m Per cent of GDP

2010-11 90,660 6.4 4,608 0.3

2011-12 153,443 10.2 6,609 0.4

2012-13 159,594 10.4 8,285 0.5

2013-14 209,559 13.1 10,843 0.7

2014-15 245,817 15.1 10,868 0.7

2015-16 303,467 18.3 12,041 0.7

2016-17 322,320 18.3 12,365 0.7

2017-18 341,961 18.5 13,135 0.7

2018-19 373,566 19.1 15,149 0.8

2019-20 491,217 24.7 13,280 0.7

2020-21 (e) 617,521 30.0 14,126 0.7

2021-22 (e) 729,023 34.2 14,727 0.7

2022-23 (e) 835,015 38.4 14,922 0.7

2023-24 (e) 920,448 40.4 16,698 0.7

2024-25 (e) 980,561 40.9 17,113 0.7

(a) Data have been revised in the 2021-22 Budget to improve accuracy and comparability through time. (b) Net debt is the sum of interest-bearing liabilities less the sum of selected financial assets (cash and

deposits, advances paid and investments, loans and placements). (c) Net interest payments are equal to the difference between interest paid and interest receipts. (e) Estimates.



Table 11.5: Australian Government general government sector face value of Australian Government Securities (AGS) on issue and interest paid(a) Face value of AGS on issue(b)

Total AGS on issue(c) Subject to Treasurer’s Direction(d) Interest paid(f)

End of year Per cent End of year Per cent Per cent


1970-71 10,887 27.0 - - 580 1.4

1971-72 11,490 25.8 - - 614 1.4

1972-73 12,217 24.6 - - 675 1.4

1973-74 12,809 21.3 - - 712 1.2

1974-75 14,785 20.8 - - 893 1.3

1975-76 17,940 21.6 - - 1,001 1.2

1976-77 20,845 21.7 - - 1,485 1.5

1977-78 23,957 22.8 - - 1,740 1.7

1978-79 28,120 23.7 - - 2,080 1.8

1979-80 29,321 21.8 - - 2,356 1.8

1980-81 30,189 19.8 - - 2,723 1.8

1981-82 31,060 17.7 - - 3,058 1.7

1982-83 37,071 19.6 - - 3,580 1.9

1983-84 45,437 21.3 - - 4,558 2.1

1984-85 54,420 23.2 - - 5,952 2.5

1985-86 63,089 24.2 - - 7,394 2.8

1986-87 67,172 23.5 - - 8,339 2.9

1987-88 62,794 19.4 - - 8,139 2.5

1988-89 56,854 15.5 - - 8,222 2.2

1989-90 48,399 12.0 - - 8,064 2.0

1990-91 48,723 11.8 - - 6,994 1.7

1991-92 58,826 13.9 - - 6,819 1.6

1992-93 76,509 17.3 - - 6,487 1.5

1993-94 90,889 19.5 - - 7,709 1.7

1994-95 105,466 21.3 - - 9,144 1.8

1995-96 110,166 20.9 - - 10,325 2.0

1996-97 111,067 20.0 - - 10,653 1.9

1997-98 93,664 15.9 - - 9,453 1.6

1998-99 85,331 13.8 - - 9,299 1.5

1999-00 75,536 11.4 - - 8,509 1.3

2000-01 66,403 9.4 - - 7,335 1.0

2001-02 63,004 8.4 - - 6,270 0.8

2002-03 57,435 7.2 - - 4,740 0.6

2003-04 54,750 6.4 - - 4,096 0.5

2004-05 55,151 6.0 - - 3,902 0.4

2005-06 54,070 5.4 - - 4,628 0.5

2006-07 53,264 4.9 - - 3,959 0.4

2007-08 55,442 4.7 - - 3,754 0.3

2008-09 101,147 8.0 95,103 7.5 3,970 0.3

2009-10 147,133 11.3 141,806 10.9 6,411 0.5



Table 11.5: Australian Government general government sector face value of Australian Government Securities (AGS) on issue and interest paid(a) (continued) Face value of AGS on issue(b)

Total AGS on issue(c) Subject to Treasurer’s Direction(d) Interest paid(f)

End of year Per cent End of year Per cent Per cent


2010-11 191,292 13.5 186,704 13.2 9,551 0.7

2011-12 233,976 15.6 229,389 15.3 10,875 0.7

2012-13 257,378 16.8 252,791 16.5 11,846 0.8

2013-14 319,487 20.0 316,952 19.8 13,972 0.9

2014-15 368,738 22.7 366,202 22.5 13,924 0.9

2015-16 420,420 25.3 417,936 25.2 14,977 0.9

2016-17 500,979 28.4 498,510 28.3 15,290 0.9

2017-18 531,937 28.8 529,467 28.6 16,568 0.9

2018-19 541,992 27.8 541,986 27.8 18,951 1.0

2019-20 684,298 34.5 684,292 34.5 16,524 0.8

2020-21 (e) 829,000 40.2 829,000 40.2 17,121 0.8

2021-22 (e) 963,000 45.1 963,000 45.1 17,789 0.8

2022-23 (e) 1,058,000 48.6 1,058,000 48.6 18,002 0.8

2023-24 (e) 1,134,000 49.7 1,134,000 49.7 20,060 0.9

2024-25 (e) 1,199,000 50.0 1,199,000 50.0 20,834 0.9

(a) Data have been revised in the 2021-22 Budget to improve accuracy and comparability through time. (b) From 2020-21 onwards, data for AGS on issue are estimates and are rounded to the nearest $1 billion. (c) Total AGS on issue includes AGS held on behalf of the states and the Northern Territory. (d) The face value of AGS subject to the Treasurer’s Direction excludes the stock and securities outlined in

subsection 51JA(2A) of the Commonwealth Inscribed Stock Act 1911. These are the same stock and securities that were excluded from the previous legislative debt limit. AGS on issue subject to the Treasurer’s Direction are not available prior to 2008-09 because the limit was first introduced in July 2008.

(e) Estimates. (f) Interest paid consists of all cash interest payments of the general government sector, including those

relating to AGS on issue.

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Table 11.6: Australian Government general government sector revenue, expenses, net operating balance, net capital investment and fiscal balance(a) Revenue Expenses Net operating balance(b) Net capital investment Fiscal balance(c)

Per cent Per cent Per cent Per cent Per cent

$m of GDP $m of GDP $m of GDP $m of GDP $m of GDP

1996-97 141,688 25.5 145,940 26.3 -4,252 -0.8 90 0.0 -4,342 -0.8

1997-98 146,820 25.0 148,788 25.3 -1,968 -0.3 147 0.0 -2,115 -0.4

1998-99 152,106 24.5 146,925 23.7 5,181 0.8 1,433 0.2 3,748 0.6

1999-00 167,304 25.3 155,728 23.6 11,576 1.8 -69 0.0 11,645 1.8

2000-01 186,106 26.4 180,277 25.6 5,829 0.8 8 0.0 5,820 0.8

2001-02 190,432 25.2 193,214 25.6 -2,782 -0.4 382 0.1 -3,164 -0.4

2002-03 206,778 25.8 201,402 25.1 5,376 0.7 287 0.0 5,088 0.6

2003-04 222,042 25.8 215,634 25.0 6,409 0.7 660 0.1 5,749 0.7

2004-05 242,354 26.3 229,427 24.9 12,926 1.4 1,034 0.1 11,892 1.3

2005-06 260,569 26.2 241,977 24.3 18,592 1.9 2,498 0.3 16,094 1.6

2006-07 277,895 25.6 259,197 23.9 18,698 1.7 2,333 0.2 16,365 1.5

2007-08 303,402 25.8 280,335 23.8 23,068 2.0 2,593 0.2 20,475 1.7

2008-09 298,508 23.7 324,889 25.8 -26,382 -2.1 4,064 0.3 -30,445 -2.4

2009-10 292,387 22.5 340,354 26.2 -47,967 -3.7 6,433 0.5 -54,400 -4.2

2010-11 309,204 21.8 356,710 25.2 -47,506 -3.4 5,297 0.4 -52,802 -3.7

2011-12 337,324 22.5 377,948 25.2 -40,624 -2.7 4,850 0.3 -45,474 -3.0

2012-13 359,496 23.4 383,351 25.0 -23,855 -1.6 987 0.1 -24,842 -1.6

2013-14 374,151 23.4 415,691 26.0 -41,540 -2.6 3,850 0.2 -45,390 -2.8

2014-15 379,455 23.4 418,956 25.8 -39,501 -2.4 2,706 0.2 -42,206 -2.6

2015-16 395,055 23.8 430,739 25.9 -35,684 -2.1 3,829 0.2 -39,513 -2.4

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Table 11.6: Australian Government general government sector revenue, expenses, net operating balance, net capital investment and fiscal balance(a) (continued) Revenue Expenses Net operating balance(b) Net capital investment Fiscal balance(c)

Per cent Per cent Per cent Per cent Per cent

$m of GDP $m of GDP $m of GDP $m of GDP $m of GDP

2016-17 415,723 23.6 449,712 25.5 -33,989 -1.9 2,876 0.2 -36,865 -2.1

2017-18 456,280 24.7 461,490 25.0 -5,209 -0.3 1,284 0.1 -6,493 -0.4

2018-19 493,346 25.3 485,869 24.9 7,476 0.4 6,126 0.3 1,350 0.1

2019-20 486,278 24.5 578,117 29.1 -91,839 -4.6 4,005 0.2 -95,844 -4.8

2020-21 (e) 504,888 24.5 659,437 32.0 -154,549 -7.5 8,620 0.4 -163,169 -7.9

2021-22 (e) 496,621 23.3 589,334 27.6 -92,713 -4.3 10,330 0.5 -103,043 -4.8

2022-23 (e) 505,145 23.2 595,378 27.4 -90,233 -4.1 10,939 0.5 -101,171 -4.6

2023-24 (e) 544,487 23.9 614,665 27.0 -70,178 -3.1 10,135 0.4 -80,313 -3.5

2024-25 (e) 577,959 24.1 633,694 26.4 -55,736 -2.3 9,161 0.4 -64,897 -2.7

(a) Data have been revised in the 2021-22 Budget to improve accuracy and comparability through time. (b) Net operating balance is equal to revenue less expenses. (c) Fiscal balance is equal to revenue less expenses less net capital investment. (e) Estimates.



Table 11.7: Australian Government general government sector net worth and net financial worth(a)

Net worth(b) Net financial worth(c)

Per cent Per cent

$m of GDP $m of GDP

1999-00 -10,424 -1.6 -70,414 -10.7

2000-01 -10,287 -1.5 -75,544 -10.7

2001-02 -15,330 -2.0 -81,707 -10.8

2002-03 -18,856 -2.4 -86,456 -10.8

2003-04 -4,740 -0.6 -75,976 -8.8

2004-05 11,066 1.2 -62,372 -6.8

2005-06 14,293 1.4 -63,442 -6.4

2006-07 42,677 3.9 -39,370 -3.6

2007-08 67,122 5.7 -18,428 -1.6

2008-09 15,452 1.2 -75,465 -6.0

2009-10 -50,383 -3.9 -148,930 -11.4

2010-11 -100,504 -7.1 -203,904 -14.4

2011-12 -252,046 -16.8 -360,672 -24.1

2012-13 -207,769 -13.5 -317,843 -20.7

2013-14 -261,596 -16.4 -375,882 -23.5

2014-15 -308,390 -19.0 -427,169 -26.3

2015-16 -423,674 -25.5 -548,028 -33.0

2016-17 -390,897 -22.2 -529,225 -30.0

2017-18 -418,135 -22.6 -562,183 -30.4

2018-19 -543,459 -27.8 -694,448 -35.6

2019-20 -664,892 -33.5 -840,557 -42.3

2020-21 (e) -586,495 -28.5 -769,785 -37.4

2021-22 (e) -677,992 -31.8 -870,626 -40.8

2022-23 (e) -767,359 -35.3 -969,767 -44.6

2023-24 (e) -836,786 -36.7 -1,048,416 -46.0

2024-25 (e) -891,445 -37.2 -1,111,397 -46.4

(a) Data have been revised in the 2021-22 Budget to improve accuracy and comparability through time. (b) Net worth is equal to total assets less total liabilities. (c) Net financial worth is equal to financial assets less total liabilities. (e) Estimates.



Table 11.8: Australian Government general government sector accrual taxation revenue, non-taxation revenue and total revenue(a) Taxation revenue Non-taxation revenue Total revenue

Per cent Per cent Per cent


1999-00 153,409 23.2 13,895 2.1 167,304 25.3

2000-01 175,876 24.9 10,229 1.5 186,106 26.4

2001-02 178,410 23.7 12,022 1.6 190,432 25.2

2002-03 195,319 24.4 11,458 1.4 206,778 25.8

2003-04 210,541 24.5 11,501 1.3 222,042 25.8

2004-05 230,490 25.0 11,863 1.3 242,354 26.3

2005-06 245,846 24.7 14,723 1.5 260,569 26.2

2006-07 262,876 24.2 15,019 1.4 277,895 25.6

2007-08 286,869 24.4 16,534 1.4 303,402 25.8

2008-09 279,303 22.2 19,206 1.5 298,508 23.7

2009-10 268,841 20.7 23,546 1.8 292,387 22.5

2010-11 289,566 20.4 19,639 1.4 309,204 21.8

2011-12 317,413 21.2 19,911 1.3 337,324 22.5

2012-13 338,106 22.0 21,390 1.4 359,496 23.4

2013-14 353,239 22.1 20,912 1.3 374,151 23.4

2014-15 356,321 21.9 23,134 1.4 379,455 23.4

2015-16 369,410 22.2 25,645 1.5 395,055 23.8

2016-17 388,641 22.1 27,082 1.5 415,723 23.6

2017-18 427,183 23.1 29,097 1.6 456,280 24.7

2018-19 456,072 23.4 37,274 1.9 493,346 25.3

2019-20 447,526 22.5 38,752 2.0 486,278 24.5

2020-21 (e) 465,771 22.6 39,116 1.9 504,888 24.5

2021-22 (e) 456,972 21.4 39,648 1.9 496,621 23.3

2022-23 (e) 466,100 21.4 39,045 1.8 505,145 23.2

2023-24 (e) 504,313 22.1 40,174 1.8 544,487 23.9

2024-25 (e) 536,676 22.4 41,283 1.7 577,959 24.1

(a) Data have been revised in the 2021-22 Budget to improve accuracy and comparability through time. (e) Estimates.

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Table 11.9: Australian Government cash receipts, payments and surplus by institutional sector ($m)(a) General government Public non-financial corporations Non-financial public sector

Underlying cash

Receipts(b) Payments(c) balance(d) Receipts(b) Payments(f) Cash surplus Receipts(b) Payments(f) Cash surplus

1988-89 90,748 85,326 5,421 4,177 6,035 257 93,923 90,312 5,678

1989-90 98,625 92,684 5,942 3,926 11,322 -5,261 101,495 102,883 681

1990-91 100,227 100,665 -438 4,804 9,351 -2,139 103,837 108,808 -2,577

1991-92 95,840 108,472 -12,631 3,899 7,713 101 97,937 114,369 -12,530

1992-93 97,633 115,751 -18,118 4,385 7,819 -196 100,512 122,042 -18,314

1993-94 103,824 122,009 -18,185 5,178 6,476 1,482 106,747 126,214 -16,703

1994-95 113,458 127,619 -14,160 5,262 7,318 1,956 116,751 132,965 -12,204

1995-96 124,429 135,538 -11,109 4,927 8,190 -527 126,593 140,963 -11,636

1996-97 133,592 139,689 -6,099 4,782 7,373 473 135,259 143,948 -5,626

1997-98 140,736 140,587 149 6,238 7,923 1,119 144,517 145,985 1,268

1998-99 152,063 148,175 3,889 na na -353 na na 3,536

1999-00 166,199 153,192 13,007 na na -2,594 na na 10,413

2000-01 182,996 177,123 5,872 na na 391 na na 6,323

2001-02 187,588 188,655 -1,067 na na 1,210 na na 65

2002-03 204,613 197,243 7,370 27,386 26,105 1,280 na na 8,651

2003-04 217,775 209,785 7,990 27,718 26,142 1,575 238,236 228,664 9,569

2004-05 235,984 222,407 13,577 29,621 28,071 1,550 257,946 242,805 15,141

2005-06 255,943 240,136 15,757 30,875 31,874 -999 278,254 263,421 14,833

2006-07 272,637 253,321 17,190 16,882 18,641 -1,759 285,336 267,719 17,625

2007-08 294,917 271,843 19,754 7,758 8,231 -472 300,503 277,754 22,800

2008-09 292,600 316,046 -27,013 7,987 8,960 -973 297,421 321,275 -23,786

2009-10 284,662 336,900 -54,494 8,419 9,341 -922 290,681 343,816 -52,879

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Table 11.9: Australian Government cash receipts, payments and surplus by institutional sector ($m)(a) (continued) General government Public non-financial corporations Non-financial public sector

Underlying cash Receipts(b) Payments(c) balance(d) Receipts(b) Payments(f) Cash surplus Receipts(b) Payments(f) Cash surplus

2010-11 302,024 346,102 -47,463 8,558 9,733 -1,175 308,258 353,452 -44,911

2011-12 329,874 371,032 -43,360 8,845 10,847 -2,002 336,122 379,266 -42,763

2012-13 351,052 367,204 -18,834 9,766 13,061 -3,294 358,088 377,221 -19,133

2013-14 360,322 406,430 -48,456 11,042 14,246 -3,204 368,521 417,248 -48,726

2014-15 378,301 412,079 -37,867 11,256 15,136 -3,880 386,643 424,229 -37,586

2015-16 386,924 423,328 -39,606 11,606 17,753 -6,147 395,842 438,228 -42,386

2016-17 409,868 439,375 -33,151 12,406 19,543 -7,138 419,433 456,020 -36,587

2017-18 446,905 452,742 -10,141 14,195 22,348 -8,153 457,604 471,451 -13,846

2018-19 485,286 478,098 -690 17,909 26,608 -8,699 498,767 500,276 -1,510

2019-20 469,398 549,634 -85,272 18,824 28,244 -9,419 483,362 573,018 -89,656

2020-21 (e) 499,831 660,783 -160,952 21,099 27,459 -6,360 514,513 681,801 -167,289

2021-22 (e) 482,053 588,672 -106,619 21,157 27,186 -6,028 498,315 610,958 -112,643

2022-23 (e) 494,000 593,267 -99,266 na na na na na na

2023-24 (e) 532,855 612,368 -79,514 na na na na na na

2024-25 (e) 571,969 628,936 -56,966 na na na na na na

(a) Data have been revised in the 2021-22 Budget to improve accuracy and comparability through time. (b) Receipts are equal to receipts from operating activities and sales of non-financial assets. (c) Payments in the general government sector are equal to payments for operating activities, purchases of non-financial assets and net cash flows from

financing activities for leases. (d) Between 2005-06 and 2019-20, the underlying cash balance is equal to receipts less payments, less net Future Fund earnings. In all other years, the underlying

cash balance is equal to receipts less payments. (e) Estimates. (f) Payments in the public non-financial corporations and non-financial public sectors are equal to payments for operating activities, purchases of non-financial

assets, distributions paid and net cash flows from financing activities for leases. na Data not available.

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Table 11.10: Australian Government accrual revenue, expenses and fiscal balance by institutional sector ($m)(a)

General government Public non-financial corporations Non-financial public sector

Fiscal Fiscal Fiscal

Revenue Expenses balance(b) Revenue Expenses balance(b) Revenue Expenses balance(b)

1996-97 141,688 145,940 -4,342 27,431 26,015 -331 na na -4,673

1997-98 146,820 148,788 -2,115 29,618 26,999 2,360 na na 251

1998-99 152,106 146,925 3,748 27,687 26,088 -816 175,891 169,111 2,932

1999-00 167,304 155,728 11,645 25,485 23,542 1,062 188,841 175,322 11,550

2000-01 186,106 180,277 5,820 25,869 24,762 -826 207,367 200,433 4,994

2001-02 190,432 193,214 -3,164 26,638 25,341 793 212,462 213,947 -2,371

2002-03 206,778 201,402 5,088 24,339 22,916 1,975 225,989 219,232 7,023

2003-04 222,042 215,634 5,749 25,449 23,444 2,143 241,746 233,333 7,892

2004-05 242,354 229,427 11,892 26,965 25,191 1,473 263,434 248,733 13,365

2005-06 260,569 241,977 16,094 28,143 29,531 -2,442 281,927 264,722 13,652

2006-07 277,895 259,197 16,365 15,443 16,360 -1,763 289,551 271,771 14,601

2007-08 303,402 280,335 20,475 6,854 6,686 -584 308,888 285,652 19,891

2008-09 298,508 324,889 -30,445 6,998 7,576 -1,495 303,309 330,268 -31,941

2009-10 292,387 340,354 -54,400 7,288 7,297 -1,079 298,033 346,008 -55,480

2010-11 309,204 356,710 -52,802 7,563 7,787 -1,446 315,001 362,732 -54,248

2011-12 337,324 377,948 -45,474 8,046 8,238 -2,158 343,722 384,538 -47,632

2012-13 359,496 383,351 -24,842 8,863 9,415 -4,189 366,642 391,048 -29,031

2013-14 374,151 415,691 -45,390 9,537 11,127 -6,070 381,971 425,102 -51,460

2014-15 379,455 418,956 -42,206 9,987 11,850 -4,856 387,719 429,083 -47,062

2015-16 395,055 430,739 -39,513 10,044 12,809 -7,486 403,868 442,318 -46,999

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Table 11.10: Australian Government accrual revenue, expenses and fiscal balance by institutional sector ($m)(a)

(continued) General government Public non-financial corporations Non-financial public sector

Fiscal Fiscal Fiscal

Revenue Expenses balance(b) Revenue Expenses balance(b) Revenue Expenses balance(b)

2016-17 415,723 449,712 -36,865 10,894 15,035 -9,918 425,114 463,243 -46,784

2017-18 456,280 461,490 -6,493 12,318 16,934 -10,055 466,661 476,403 -16,463

2018-19 493,346 485,869 1,350 15,836 20,899 -11,121 507,017 504,486 -9,655

2019-20 486,278 578,117 -95,844 17,029 23,174 -10,096 500,961 598,651 -105,637

2020-21 (e) 504,888 659,437 -163,169 18,024 22,162 -6,505 519,545 677,727 -169,168

2021-22 (e) 496,621 589,334 -103,043 18,532 20,969 -5,986 512,431 607,598 -109,045

2022-23 (e) 505,145 595,378 -101,171 na na na na na na

2023-24 (e) 544,487 614,665 -80,313 na na na na na na

2024-25 (e) 577,959 633,694 -64,897 na na na na na na

(a) Data have been revised in the 2021-22 Budget to improve accuracy and comparability through time. (b) Fiscal balance is equal to revenue less expenses less net capital investment. Net capital investment is not shown in this table. (e) Estimates. na Data not available.



Table 11.11: Australian Government general government sector receipts, payments, underlying cash balance, net debt and net interest payments presented on a real per capita basis(a)(b)

Taxation Non-taxation Total Underlying Net interest receipts receipts receipts Payments cash balance Net debt payments

1970-71 5,494 838 6,331 5,643 688 263 -144

1971-72 5,524 868 6,391 5,771 620 -347 -171

1972-73 5,484 863 6,348 6,122 227 -515 -164

1973-74 6,138 791 6,930 6,278 652 -1,049 -162

1974-75 6,797 722 7,519 7,433 87 -914 -116

1975-76 7,125 761 7,886 8,516 -631 -144 -139

1976-77 7,212 796 8,008 8,471 -463 329 -23

1977-78 7,073 855 7,928 8,601 -672 956 1

1978-79 7,066 821 7,887 8,534 -647 1,504 77

1979-80 7,430 770 8,200 8,557 -358 1,689 119

1980-81 7,954 817 8,771 8,815 -45 1,549 151

1981-82 8,208 784 8,992 8,916 75 1,283 147

1982-83 7,861 850 8,712 9,353 -642 1,754 172

1983-84 7,956 910 8,866 10,110 -1,243 2,841 288

1984-85 8,889 981 9,870 10,883 -1,013 3,674 472

1985-86 8,978 1,124 10,102 10,883 -782 4,103 603

1986-87 9,131 1,134 10,265 10,600 -334 4,003 654

1987-88 9,453 1,060 10,512 10,329 183 3,443 567

1988-89 9,628 842 10,470 9,844 625 2,536 516

1989-90 9,555 827 10,382 9,756 625 1,697 479

1990-91 9,153 739 9,893 9,936 -43 1,670 359

1991-92 8,368 812 9,180 10,390 -1,210 2,973 365

1992-93 8,341 834 9,175 10,877 -1,703 5,189 375

1993-94 8,532 956 9,488 11,150 -1,662 6,417 514

1994-95 9,191 748 9,938 11,179 -1,240 7,314 639

1995-96 9,608 725 10,333 11,255 -922 7,958 736

1996-97 10,096 732 10,828 11,322 -494 7,804 769

1997-98 10,511 783 11,294 11,282 12 6,655 664

1998-99 10,852 1,070 11,922 11,617 305 5,650 678

1999-00 11,455 1,127 12,582 11,597 985 4,365 569

2000-01 12,010 891 12,901 12,487 414 3,299 437

2001-02 11,882 828 12,710 12,782 -72 2,863 363

2002-03 12,500 794 13,294 12,815 479 2,170 244

2003-04 12,983 693 13,677 13,175 502 1,695 191

2004-05 13,566 727 14,293 13,470 822 945 152

2005-06 14,012 808 14,820 13,904 912 19 133

2006-07 14,269 795 15,064 13,997 950 -1,342 13

2007-08 14,630 817 15,447 14,239 1,035 -2,093 -53

2008-09 13,618 942 14,559 15,726 -1,344 -562 -60

2009-10 12,552 1,077 13,629 16,131 -2,609 2,292 114



Table 11.11: Australian Government general government sector receipts, payments, underlying cash balance, net debt and net interest payments presented on a real per capita basis(a)(b) (continued) Taxation Non-taxation Total Underlying Net interest

receipts receipts receipts Payments cash balance Net debt payments

2010-11 12,919 912 13,831 15,849 -2,174 4,152 211

2011-12 13,692 818 14,511 16,321 -1,907 6,750 291

2012-13 13,859 982 14,841 15,524 -796 6,747 350

2013-14 13,798 813 14,611 16,480 -1,965 8,497 440

2014-15 13,906 960 14,866 16,193 -1,488 9,660 427

2015-16 13,829 936 14,765 16,154 -1,511 11,580 459

2016-17 13,992 1,129 15,121 16,210 -1,223 11,891 456

2017-18 14,900 1,028 15,929 16,137 -361 12,188 468

2018-19 15,492 1,268 16,759 16,511 -24 12,901 523

2019-20 14,525 1,266 15,791 18,490 -2,869 16,525 447

2020-21 (e) 15,208 1,336 16,544 21,871 -5,327 20,439 468

2021-22 (e) 14,419 1,180 15,598 19,048 -3,450 23,590 477

2022-23 (e) 14,290 1,214 15,504 18,620 -3,115 26,207 468

2023-24 (e) 14,922 1,203 16,125 18,531 -2,406 27,854 505

2024-25 (e) 15,305 1,358 16,663 18,322 -1,660 28,566 499

(a) Data have been revised in the 2021-22 Budget to improve accuracy and comparability through time. (b) The real levels are derived using the Consumer Price Index (CPI). The current reference period for the

CPI is 2011-12, which means the real levels per capita are reported in 2011-12 dollars. (e) Estimates.

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Budget Paper No. 1 - Budget Strategy and Outlook · 2021. 5. 11. · The stronger-than-expected economic recovery has improved the budget position. The underlying cash balance is